ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31,
2011

or

¨

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________
to _____________

Commission file number 000-52186

KANDI TECHNOLOGIES, CORP.

(Exact name of registrant as specified in
its charter)

Delaware

90-0363723

(State or other jurisdiction of incorporation

(I.R.S. Employer Identification No.)

or organization)

Jinhua City Industrial Zone

Jinhua, Zhejiang Province

People’s Republic of China

Post Code 321016

(Address of principal executive offices)
(Zip Code)

(86-579) 82239856

(Registrant’s telephone number, including
area code)

Securities Registered Pursuant to Section
12(b) of the Act:

Common Stock, Par Value $0.001 Per Share

NASDAQ Global Market

(Title of each class)

(Name of exchange on which

registered)

Securities Registered Pursuant to Section
12(g) of the Act:None.

Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨
No þ

Indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨
No þ

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes þ No
¨

Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). þ Yes ¨ No

Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. þ

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company þ

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No
þ

The aggregate market value of the common stock
issued and outstanding and held by non-affiliates of the registrant, based upon the closing sales price for the common stock on
the NASDAQ Global Market on June 30, 2011, the last business day of the registrant’s second fiscal quarter, was approximately
$27,122,126. For the purposes of this calculation, executive officers, directors, and each person that owns 10% or more of our
outstanding common stock are deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination
for other purposes.

As of March 26, 2012, the registrant had 27,447,593
shares of common stock, par value of $0.001 outstanding.

This Annual Report on Form 10-K (this “Annual
Report”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These include statements about our expectations, beliefs,
intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,”
“intend,” “plan,” “will,” “we believe,” “our company believes,” “management
believes” and similar language. These forward-looking statements are based on our current expectations and are subject to
certain risks, uncertainties and assumptions, including those set forth in the discussion under Item 1, “Business”,
Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.” Our actual results may differ materially from results anticipated in these forward-looking statements. We
base our forward-looking statements on information currently available to us, and we assume no obligation to update them. In addition,
our historical financial performance is not necessarily indicative of the results that may be expected in the future and we believe
such comparisons cannot be relied upon as indicators of future performance.

Although we believe that the expectations
reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to
update any of the forward-looking statements to conform these statements to actual results.

PART I

Except as otherwise indicated by the context,
references in this Annual Report to “we,” “us,” “our,” “Kandi,” or the “Company”
are to the combined businesses of Kandi Technologies, Corp. and its subsidiaries.

Item 1. Business.

Introduction

The Company was incorporated under the
laws of the State of Delaware on March 31, 2004. On August 13, 2007, the Company changed its name from Stone Mountain Resources,
Inc. to Kandi Technologies, Corp.

On June 29, 2007, Continental Development
Limited, a Hong Kong corporation (“Continental”) became a wholly owned subsidiary of Stone Mountain. Thereafter, the
business of the Company was that of Continental’s wholly owned subsidiary, Zhejiang Kandi Vehicles Co., Ltd. (“Kandi
Vehicles”).

On June 24, 2008, the Company acquired
100% of the shares of Kandi Special Vehicles Co., Ltd (“KSV”), after which KSV became a wholly-owned subsidiary of
the Company. On December 21, 2011, KSV formally merged into Kandi Vehicles and, as a result of the merger, KSV ceased to exist
as a separate entity.

On December 31, 2010, Jinhua Three Parties
New Energy Vehicles Service Co., ltd. (“Jinhua Service”) was formed by a joint venture among the State Grid Power Corporation,
Tianneng Power International, Inc. and Kandi Vehicles. The joint venture established the first Chinese electric super-mini automobile
battery replacement service provider. The Company owns 30% of Jinhua Service.

In the first fiscal quarter of 2011, Jinhua
Kandi New Energy Vehicles Co., Ltd. (“Kandi New Energy”) was incorporated by Kandi Vehicles and Mr. Xiaoming Hu, the
Chairman and CEO of the Company. The establishment of Kandi New Energy is to comply with Chinese regulation that foreign investor
can own no more than 50% of an automobile manufacturing company in China with the objective to sell automobile products in China.
Mr. Hu, as a Chinese citizen and Kandi Vehicles as a foreign investment entity each owns 50% of Kandi New Energy to comply with
such regulation. Kandi Vehicles made its contribution in kind and Mr. Hu made his contribution in cash loaned by Kandi Vehicles.
Mr. Hu’s entire equity in Kandi New Energy is put in escrow and trust with Kandi Vehicles. Therefore, Kandi Vehicles effective
controls 100% of Kandi New Energy. All profits of Kandi New Energy will be distributed to Kandi Vehicles.

To comply with the Peoples Republic of
China (“PRC” of “China”)) regulation, under the Agreement, the parties jointly invested to establish Kandi
New Energy. Each party contributed 50% of such investment. Kandi Vehicles made its contribution in kind, and Mr. Hu made his contribution
in cash, pursuant to a loan by Kandi Vehicles. As a result, each party has a 50% ownership interest in Kandi New Energy.

1

The Company’s organizational chart
is as follows:

Zhejiang Kandi Vehicles Co. Ltd. has a
50% ownership and controlled the Board of Directors in Kandi New Energy. Under Share Escrow and Trust Agreement, Loan Agreement,
Contractor Agreement, between Zhejiang Kandi and other equity owner, Zhejiang Kandi Vehicles Co. Ltd. is entitled to 100% of the
economic benefits, voting rights and residual interests (100% profits and loss absorption rate) in Kandi New Energy.

The primary operations of the Company are
designing, developing, manufacturing, and commercializing all-terrain vehicles (“ATVs”), go-karts, and specialized
automobiles, such as electric vehicles (“EVs”) for the PRC and global markets.

Includes the CoCo EV and mini-cars. In 2011, sales of super-mini-cars included 1,076 EVs
and 1 gas powered super-mini-car; whereas in 2010, such sales were 658 EVs and 960 gas powered super-mini-cars.

2

Off-Road Vehicles

Kandi produces a wide range of go-karts,
from the 90cc class to the 1,000cc class in cylinder displacement. Kandi also produces four-wheeled ATVs and specialized UTVs,
which are ATVs special-fitted for agricultural and industrial use. Kandi started mass production of its go-karts in 2006; in previous
quarterly and annual reports, we inadvertently stated that production of these go-karts started in 2003.

During the twelve months ended December
31, 2011, the market condition for ATV products continued to recover. The Company continued to develop price competitive products
to meet market demands, causing good results and successfully increasing the Company’s sales. Revenues from our ATVs experienced
an increase of $1,133,532 or 30.5% in fiscal year ended December 31, 2011 from the previous year; this increase is primarily attributable
to a 70% increase in unit sales, from 5,868 units in the fiscal year 2010 to 9,958 units in 2011, and the effect of a 23% unit
price reduction.

In 2011, our go-karts segment experienced
a slight decrease in revenue of $2.5 million, or 10% from fiscal year 2010. This slight decrease was mainly attributable to a 9%
decrease in unit sales from 28,366 units in 2010 to 25,757 units in 2011. We experienced slightly higher sales in 2010,
especially in the fourth quarter of 2010, due to improved market conditions, which had been suppressed during the financial crisis;
the improved market conditions, during the later periods of 2010, resulted in an increase in demand, especially for middle and
small size products; whereas, in year 2011, demand slightly retreated after the peak in 2010.

Utility vehicles (UTVs) experienced a significant
decrease in revenue from $4,839,256 to $2,696,106. This 44% decrease is due to a 47% drop in unit sales from 2,270 units in 2010
to 1,198 units in 2011. This significant decrease in sales is primarily attributable to high competition in this UTV market, and
the fact that the UTVs manufactured by the Company are relatively high end and more expensive than comparable products offered
by our competitors. At this moment, the Company continues to develop new products and enhance existing products to meet future
demands in the UTV market. Further, many of the new products that we introduced to the market generated positive feedback. During
the second half of 2011, there were some signs of improvement in the UTV sales market.

Super-Mini-Car Products

In August 2008, Kandi began selling
its gas-powered super-mini-car. In fiscal year 2010, due to the Chinese government’s initiative and promotion of new
energy cars, the Company shifted its target market, for its EV products, from the United States to China. As a result of the
above mentioned shift in our target market, and the fact that governments (local and national) did not finalize their
supporting policies until October 2011, the Company did not realize mass unit sales during fiscal year 2011. For the fiscal
year ended December 31, 2011, revenues from our super-mini car, dropped by $546,483, or 8% from the same period in 2010. This
decrease was primarily attributable to a decrease in gas powered super-mini-cars (a decrease of 959 units); however, our unit
sales of EVs increased by 418 units in comparison to 2010. With respect to aggregate super-mini-car unit sales (gas powered
super-mini-cars and EVs), we experienced an overall decrease from 1,618 units in 2010 to 1,077 in 2011. For the twelve months
ended December 31, 2011, the average unit price of our super-mini-cars increased 38%, because super-mini cars sold by the
Company during this period had enhanced features and improved performance and we experienced a change in the percentage of
gas powered super-mini-cars and EVs sold. Starting on October 12, 2011, the Zhejiang Province government and Jinhua City
government adopted formal policies and started providing subsidies to purchasers of our super-mini cars. As a result of (i)
developments in the Jinhua market, as well as our expected launch in the Hangzhou market, (ii) new molds that were developed
by the Company with funds raised in the previous year, and (iii) the gradual use of these molds in 2012, which are expected
to improve the quality of our EVs, the Company remains optimistic about future EV sales.

3

Motorcycles

The three-wheeled motorcycle (TT) is changing
from a recreational vehicle that is not street legal to a formal vehicle that is subject to additional regulations and certifications.
This role-changing period caused the revenues from our TT to drop by $496,578, or 24%, from fiscal year 2010 to $1,592,770 in fiscal
year 2011. This decrease in revenue was primarily attributable to a 15% decrease in unit sales from 917 units in 2010 to 782 units
in 2011. In responding to this market situation, the Company modified and improved the TT’s design and quality in the first
half of 2011, which resulted in a good sales performance in the second half of 2011 compared to the comparable period in 2010,
but this increase in sales performance was not enough to offset the lower sales performance the Company experienced during the
first six months of 2011. Currently the Company is preparing for the above-mentioned certification, and the Company believes that
obtaining the necessary certifications will positively impact our future performance.

Refitted Car

For the fiscal year ended December 31,
2011, the Company refitted other companies’ vehicles to meet special requirements for certain customers. The Company expects
to expand this new business and stimulate development.

The following table shows the breakdown
of Kandi’s revenues from its customers by geographic markets based on the location of distributors, during the fiscal years
ended December 31, 2011 and 2010:

Year Ended December 31

2011

2010

Sales Revenue

Percentage

Sales Revenue

Percentage

North America

$

4,739,944

12

%

$

4,474,619

11

%

Europe

1,218,274

3

%

497,910

1

%

China

34,218,930

85

%

37,907,771

88

%

Total

40,177,148

100

%

42,880,300

100

%

For the year ended December 31, 2011, about
90% of sales in China were sold to Chinese export agents, who resell the Company’s products to North America, Europe, and
other regions. The Company experienced similar sales in the above listed geographic markets in fiscal years ended 2010 and 2009.

4

Development Activities

On March 14, 2011, the Company
finalized a Strategic Cooperation Agreement with Share s.r.l corporation (“SHARE”), a Rome, Italy based EV distributor.
Under the terms of the strategic cooperation agreement, Kandi will provide 1,000 EVs for export to Italy. To better protect and
preserve the ancient city of Rome, its city government has planned to gradually employ EVs to restrict gasoline cars’ entrance
into the city, which will substantially reduce pollution from automobile emissions. This commitment brings a unique opportunity
for Kandi’s pure EVs in the European market. According to the cooperative agreement signed by the companies, Kandi and SHARE
will cooperate to expand sales of Kandi’s pure electric vehicles in the European market, with Rome as a starting point.

On March 29, 2011, Kandis' New Lithium-Ion
EV was unveiled at Hangzhou's First New Energy Vehicle Showroom. The KD 5011 is available for sale to consumers in Hangzhou. The
new model KD 5011 EV is approved for a national subsidy of RMB60,000, providing average consumers with a low-cost, eco-friendly
alternative for urban transportation.

On April 25, 2011, Vice Governor Mao of
Zhejiang Province visited Kandis' facilities, along with other provincial and Jinhua city government officials. Mr. Mao encouraged
Kandi to continue its innovative focus on pure EV business development while maintaining overall quality and competitiveness within
the marketplace.

On June 13, 2011, the Company received
formal provincial government approval on the Company’s application for a new EV pilot program in Jinhua City, including RMB
15 million ($2.3 million U.S.) per year in government subsidies to 3,000 local residents that purchase Kandi clean EVs through
2012.

On July 5, 2011, the Company signed a strategic
cooperation agreement with a State Grid affiliate, Hangzhou Electric Vehicle Service Co., Ltd., for promoting the launch of a 20,000
EV pilot program by Hangzhou Municipal City through the end of fiscal year 2012.

On August 14, 2011, a team was formally
formed in Hangzhou City by the Development Research Center of the State Council, the Society of Automotive Engineers of China (SAEC),
and Zhejiang University in connection with researching a subject proposed by the Company: the feasibility of building a 100,000
pure EV renting network in Hangzhou City and the related supporting policies required. The objective of this research is to help
resolve the problem of the industrialization of pure EV, traffic jam problems and parking difficulties in current Chinese cities.

On October 12, 2011, an inauguration ceremony
for a new EV promotional campaign of Jinhua City was sponsored and held by Jinhua Municipal City at the facility of the Company.
The ceremony was hosted by the Director and the Deputy Director of Economic and Information Technology Commission of Jinhua, Mr.
Hongshen Jin and Mr. Zhongjun Li. The Deputy Mayor of Jinhua City, Mr. Zhongliang Jin, and the Chairman and CEO of Kandi, Mr. Xiaomin
Hu, attended the ceremony and delivered keynote speeches. Other distinguished guests included the heads of the Municipal City Development
and Reform Commission, the Economic and Information Technology Commission, the Public Security Bureau, the Finance Department,
the Technology Department, and other relevant departments of the Jinhua Municipal City. The objective of the ceremony was to promote
sales of our EVs in Jinhua City through government financial subsidies to consumers who purchase the Kandi pure EV. A Kandi pure
EV is priced at 43,000 RMB (approximately $6,750). To encourage consumers to purchase the electric vehicles, Zhejiang Provincial
Government and Jinhua Municipal Government will provide subsidies of 32,000 RMB (approximately $5,024) for each of the first 500
Kandi pure EV purchased, 20,000 RMB (approximately $3,140) for each of the next 1,000 Kandi pure EV purchased, and 16,000 RMB (approximately
$2,512) for each of the following 1,500 of Kandi pure EV purchased.

5

On November 9, 2011, the Company signed
a Framework Agreement on Cooperation with TongXu AoXing Vehicle Co., Ltd. for the purpose of brand building, enhancing competitive
capability and exploring market quickly. This agreement includes: (1) the Company authorizing TongXu AoXing Vehicle Co., Ltd. to
establish a sales company in TongXu County, KaiFeng City, HeNan Province to sell Kandi brand products in KaiFeng area; (2) when
the cooperation comes to certain level, both parties agree to reorganize the assets to realize the sharing of resources if necessary.

On February 13, 2012, the Company
entered into a Share Exchange Agreement (the “Exchange Agreement”) with KO NGA Investment Limited (“KO
NGA”) and each of the shareholders of KO NGA (“KO NGA Shareholders,” and, together with KO NGA, the
“Sellers”). Pursuant to the terms of the Exchange Agreement, the Sellers will exchange an aggregate of 253 shares
of KO NGA, representing 100% of the issued and outstanding shares of KO NGA, to the Company for a total of 2,354,211 shares
(the “Exchange Shares”) of the Company’s common stock (the “Exchange”), representing an
aggregate exchange purchase price of approximately $7,952,524, which is primarily derived from KO NGA’s indirect,
wholly-owned operating entity Yongkang Scrou Electric. Co., Ltd. in China. Upon consummation of the Exchange, KO
NGA will become a wholly-owned subsidiary of the Company. The Exchange Shares will be issued by the Company in reliance on an
exemption from the registration requirements of the Securities Act for the private placement of our securities pursuant to
Regulation S of the Securities Act. The Exchange Shares will be issued to non-U.S. persons (as such term is
defined in Regulation S) in an offshore transaction relying on Regulation S.

On February 29, 2012, the Ministry of Industry
and Information Technology of China issued the “Energy-Saving and New Energy Vehicle Demonstration and Promotion for Use
Project” list; Kandi's pure electric cargo vehicle model KD5021XXYBEV was included on this list.

On March 6, 2012, the Ministry of Finance,
the Ministry of State Administration of Taxation and the Ministry of Industry and Information Technology of China, collectively,
issued and released a list of Energy-Saving and New EVs that qualify for the recently enacted Registration Tax Reduction and Exemption.
Kandi's pure EV (model number KD5011XXYEV) was among the first vehicles included on this list. Consumers that purchase the KD5011XXYEV
model are exempt from paying the annual registration tax required of other vehicle owners starting January 1, 2012.

6

Sales and Distribution

Kandi’s sales are made through trading
companies, which distribute Kandi’s products to local and global customers.

Sources of Supply

Kandi manufactures the major components
of its vehicles by itself. Other components and parts needed are purchased from expertise suppliers and specialized
manufacturers. Kandi does not have and does not anticipate having any difficulty in obtaining its required materials
from suppliers; in reaching this determination, we considered our current contracts and our current satisfactory business relationship
with our suppliers.

Competition

The global off-road vehicle market and
new EV market are both highly competitive. Competition in such markets is based upon a number of factors, including price, quality,
reliability, styling, product features and warranties. We are a relatively new entrant into the market, and many of our competitors
have financial and marketing resources that are substantially greater than Kandi; however, we believe that, with respect to the
Chinese domestic pure EV industry, we are one of the industry leaders.

Employees

As of December 31, 2011, Kandi had a total
of 447 full time employees. None of our employees are represented by any collective bargaining agreements.

Environmental and Safety Regulation

Emissions

The United States Environmental Protection
Agency (“EPA”) and the California Air Resources Board (“CARB”) have adopted emissions regulations applicable
to Kandi’s products. CARB has emissions regulations for ATVs and off-road vehicles which the Company already meets. In October
2002, the EPA established new corporate average emission standards effective for model years 2006 through 2012 for non-road recreational
vehicles, including ATVs and off-road vehicles.

Kandi’s motorcycles are also subject
to EPA and CARB emission standards. Kandi believes that its motorcycles have always complied with these standards. The CARB regulations
required additional motorcycle emission reductions in model year 2008, which the Company met. The EPA adopted the CARB emission
limits in a January 2004 rule that allows an additional two model years to meet these new CARB emission requirements on a nationwide
basis.

7

Kandi’s products are also subject
to international laws and regulations related to emissions in places where it sells its products outside the United States. Europe
currently regulates emissions from certain of the Company’s ATV-based products, motorcycles, and super-mini-cars and the
Company meets these requirements. Canada’s emission regulations for motorcycles are similar to those in the U.S. In December
2006, Canada proposed a new regulation that would essentially adopt the U.S. emission standards for ATVs and off-road vehicles.
These regulations became effective in 2009 and the Company meets this standard.

Kandi believes that its off-road vehicles
and super-mini-cars comply with applicable emission standards and related regulations in the United States and internationally.
Kandi is unable to predict the ultimate impact of the adopted or proposed regulations on Kandi and its business.

Use regulation

State and federal laws and regulations
have been promulgated or are under consideration relating to the use or manner of use of Kandi’s products. Some states and
localities have adopted, or are considering the adoption of, legislation and local ordinances which restrict the use of ATVs and
off-road vehicles to specified hours and locations. The federal government also has restricted the use of ATVs and off-road vehicles
in some national parks and federal lands. In several instances this restriction has been a ban on the recreational use of these
vehicles. Kandi is unable to predict the outcome of such actions or the possible effect on its business. Kandi believes that its
business would be no more adversely affected than those of its competitors by the adoption of any pending laws or regulations.

Product Safety and Regulation

Safety Regulation

The federal government and individual states
have promulgated or are considering promulgating laws and regulations relating to the use and safety of Kandi’s products.
The federal government is the primary regulator of product safety. The Consumer Product Safety Commission (“CPSC”)
has federal oversight over product safety issues related to ATVs and off-road vehicles. The National Highway Transportation Safety
Administration (“NHTSA”) has federal oversight over product safety issues related to on-road motorcycles.

In August 2008, the Consumer Product Safety
Improvement Act (the “Act”) was passed. The Act includes a provision that requires all manufacturers and distributors
who import into or distribute ATVs within the United States to comply with the ANSI/SVIA safety standards, which were previously
voluntary. The Act also requires the same manufacturers and distributors to have ATV action plans filed with the CPSC that are
substantially similar to the voluntary action plans that were previously in effect. Kandi currently complies with the ANSI/SVIA
standard.

Kandi’s motorcycles are subject to
federal vehicle safety standards administered by NHTSA. Kandi’s motorcycles are also subject to various state vehicle safety
standards. Kandi believes that its motorcycles comply with safety standards relevant to motorcycles.

8

Kandi’s products are also subject
to international standards related to safety in places where it sells its products outside the United States. Kandi believes that
its motorcycles and super-mini-cars comply with applicable safety standards in the United States and internationally.

Principal Executive Offices

Our principal executive office is located
in the Jinhua City Industrial Zone in Jinhua, Zhejiang Province, PRC, 321016 and our telephone number (86-579)82239856.

Item 1A. Risk Factors.

You should carefully consider the risks
described below together with all of the other information included in this report before making an investment decision with regard
to our securities. The statements contained in or incorporated into this annual report on Form 10-K that are not historic
facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially
from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our
business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could
decline, and you may lose all or part of your investment.

Risks Relating to Our Overall Business
Operations

We may not be able to comply with
all applicable government regulations.

We are subject to extensive governmental
regulation by the central, regional and local authorities in the PRC, where our business operations take place. We believe that
we are currently in substantial compliance with all laws and governmental regulations and that we have all material permits and
licenses required for our operations. Nevertheless, we cannot assure investors that we will continue to be in substantial compliance
with current laws and regulations, or that we will be able to comply with any future laws and regulations. To the extent that new
regulations are adopted, we will be required to conform our activities in order to comply with such regulations. Failure to comply
with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as
well as potential criminal sanctions, which could have a material adverse effect on our business, operations and finances.

Compliance with environmental regulations
can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary
damages and fines.

Our business operations generate noise,
waste water, and gaseous and other industrial wastes. We are required to comply with all national and local regulations regarding
protection of the environment. We are in compliance with current environmental protection requirements and have all necessary environmental
permits to conduct our business. However, if more stringent regulations are adopted in the future, the costs of compliance with
these new regulations could be substantial. Additionally, if we fail to comply with present or future environmental regulations,
we may be required to pay substantial fines, suspend production or cease operations. Any failure by us to control the use of, or
to restrict adequately the discharge of, hazardous substances could subject us to potentially significant monetary damages and
fines or suspensions to our business operations. Certain laws, ordinances and regulations could limit our ability to develop, use,
or sell our products.

9

Our business depends substantially
on the continuing efforts of our executive officers, and our business may be severely disrupted if we lose their services.

Our future success depends substantially
on the continued services of our executive officers, especially our CEO and Chairman of the Board of Directors, Mr. Hu Xiaoming.
We do not maintain key man life insurance on any of our executive officers. Although this possibility is low, if any
of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily,
if at all. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain
new officers. In addition, if any of our executives joins a competitor or forms a competing company, we may lose some
of our customers.

We may be subject to product liability
claims, recalls or warranty claims, which could be expensive, damage our reputation and result in a diversion of management resources.

The Company may be subject to lawsuits
resulting from injuries associated with the use of the vehicles that it sells. The Company may incur losses relating to these claims
or the defense of these claims. There is a risk that claims or liabilities will exceed our insurance coverage. In addition, the
Company may be unable to retain adequate liability insurance in the future.

The Company may also be required to participate
in recalls involving our vehicles, if any prove to be defective, or we may voluntarily initiate a recall or make payments related
to such claims as a result of various industry or business practices or the need to maintain good customer relationships. Such
a recall would result in a diversion of resources. While we do maintain product liability insurance, we cannot assure you that
it will be sufficient to cover all product liability claims, that such claims will not exceed our insurance coverage limits or
that such insurance will continue to be available on commercially reasonable terms, if at all. Any product liability claim brought
against us could have a material adverse effect on our results of operations.

Risks Relating to Our Vehicle Machinery
Production Operations

We may be subject to significant potential
liabilities as a result of defects in production and product liability.

Through our machinery production operations,
we may be subject to claims of product defects and/or product liability arising in the ordinary course of business. These claims
are common to the machinery production industry and can be costly.

10

With respect to certain general liability
exposures, including manufacturing defect and product liability, interpretation of underlying current and future trends, assessment
of claims and the related liability and reserve estimation process is highly subjective due to the complex nature of these exposures,
with each exposure exhibiting unique circumstances. Furthermore, once claims are asserted for construction defects, it is difficult
to determine the extent to which the assertion of these claims will expand geographically. We may not have sufficient funds available
to cover any liability for damages, the cost of repairs, and/or the expense of litigation surrounding such claims, and future claims
may arise out of events or circumstances not covered by insurance and not subject to effective indemnification agreements with
our subcontractors.

The Company and its subsidiary, Kandi Vehicles,
are defendants in two lawsuits alleging product defects as described below at “Legal Proceedings”. While the Company
and Kandi Vehicles have denied liability and will vigorously defend the lawsuits, and the Company believes it has no liability,
an adverse decision could have a material adverse affect on the Company.

The vehicle machinery industry is
highly competitive, and we are subject to risks relating to competition that may adversely affect our performance.

The vehicle machinery industry is highly
competitive, and our continued success depends upon our ability to compete effectively in markets that contain numerous competitors,
some of which have significantly greater financial, marketing and other resources than we have. Competition may reduce our pricing
structures, potentially causing us to lower our prices, which may adversely impact our profits. New or existing competition that
uses a business model that is different from our business model may put pressure on us to change our model so that we can remain
competitive.

Our high concentration of sales to
relatively few customers may result in significant uncollectible accounts receivable exposure, which may adversely impact our liquidity,
business, results of operations and financial condition.

As of December 31, 2011, our top three
customers, in the aggregate, accounted for 74% and 75%, respectively, of our sales and accounts receivable. Due to the concentration
of sales to relatively few customers, we face credit exposure from our customers and may experience uncollectible receivables from
these customers should they face financial difficulties. If these customers fail to pay their accounts receivable, file for bankruptcy
or significantly reduce their purchases of our programming, it would have an adverse effect on our business, financial condition,
results of operations, and liquidity.

The Company’s major customers for
the year ended December 31, 2011 accounted for the following percentages of total sales and accounts receivable as follows:

Sales

Accounts Receivable

Major Customers

Twelve Months Ended December 31, 2011

Twelve Months Ended December 31, 2010

December 31, 2011

December 31, 2010

Company A

29

%

46

%

-

61

%

Company B

25

%

15

%

56

%

14

%

Company C

20

%

35

%

19

%

20

%

Company D

10

%

-

10

%

-

Company E

8

%

-

2

%

-

11

Our business is subject to the risk
of supplier concentrations.

We depend on a limited number of suppliers
for the sourcing of major components and parts and principal raw materials. As of December 31, 2011 and 2010, one supplier accounted
for 61% and 84% of our purchases, respectively. As a result of this concentration in our supply chain, our business and operations
would be negatively affected if any of our key suppliers were to experience significant disruption affecting the price, quality,
availability or timely delivery of their products. The partial or complete loss of these suppliers, or a significant adverse change
in our relationship with any of these suppliers, could result in lost revenue, added costs and distribution delays that could harm
our business and customer relationships. In addition, concentration in our supply chain can exacerbate our exposure to risks
associated with the termination by key suppliers of our distribution agreements or any adverse change in the terms of such agreements,
which could have a negative impact on our revenues and profitability.

The Company’s major suppliers for
the twelve months ended December 31, 2011 accounted for the following percentage of total purchases and accounts payable as follows:

Purchases

Accounts Payable

Major Suppliers

Twelve Months Ended December 31, 2011

Twelve Months Ended December 31, 2010

December 31, 2011

December 31, 2010

Company F

61

%

84

%

1

%

26

%

Company G

3

%

-

4

%

1

%

Company H

2

%

1

%

4

%

1

%

Company I

2

%

2

%

2

%

4

%

Company J

2

%

1

%

-

3

%

General economic conditions may negatively
impact our results.

The consumption of entertainment products,
such as go-karts, and super-mini-cars depends on continued economic growth. Due to the European Debt Crisis and the slow global
economy, the uncertainty of the current economic environment remains. Moderate or severe economic downturns or adverse conditions
may negatively affect our operations. These conditions may be widespread or isolated to one or more geographic regions. A tightening
of the labor markets in one or more geographic regions may result in fewer qualified applicants for job openings in our facilities.
Higher wages, related labor costs and other increasing cost trends may negatively impact our results.

12

Risks Related to Doing Business in China

Changes in political and economic
conditions may affect our business operations and profitability.

Since our business operations are primarily
located in China, our business operations and financial position are subject, to a significant degree, to the economic, political
and legal developments in China.

China’s government started implementing
its economic reform policy in 1978, which enabled China’s economy to gradually transform from a “planned economy”
to a “socialist market economy.” In 1993, the concept of the socialist market economy was introduced into the Constitution
of China, and the country has since experienced accelerated development of a market economy. A noteworthy recent phenomenon is
that non-state owned enterprises, such as private enterprises, play an increasingly important role in the Chinese economy and the
degree of direct control by the PRC government over the economy is gradually declining.

While the Chinese government has not halted
its economic reform policy since 1978, any significant adverse changes in the social, political and economic conditions of China
may fundamentally impact China’s economic reform policies, and thus the Company’s operations and profits may be adversely
affected.

Change in tax laws and regulations
in China may affect our business operations.

Various tax reform policies have been implemented
in the PRC in recent years. However, there can be no assurance that the existing tax laws and regulations will not be revised or
amended in the future.

Uncertainties with respect to the
Chinese legal system could have a material adverse effect on us and may restrict the level of legal protections to foreign investors.

China’s legal system is based on
statutory law. Unlike the common law system, statutory law is based primarily on written statutes. Previous court decisions may
be cited as persuasive authority but do not have a binding effect. Since 1979, the PRC government has been promulgating and amending
the laws and regulations regarding economic matters, such as corporate organization and governance, foreign investment, commerce,
taxation and trade. However, since these laws and regulations are relatively new, and the PRC legal system continues
to rapidly evolve, the interpretation of many laws, regulations and rules is not always uniform and enforcement of these laws,
regulations and rules involves uncertainties, which may limit legal protections available to us.

In addition, any litigation in China may
be protracted and may result in substantial costs and diversion of resources and management’s attention. The legal system
in China cannot provide investors with the same level of protection as in the U.S. The Company is governed by the law and regulations
generally applicable to local enterprises in China. Many of these laws and regulations were recently introduced and remain experimental
in nature and subject to changes and refinements. Interpretation, implementation and enforcement of the existing laws and regulations
can be uncertain and unpredictable and therefore may restrict the legal protections of foreign investors.

13

Changes in Currency Conversion Policies
in China may have a material adverse effect on us.

Renminbi (“RMB”) is still not
a freely exchangeable currency. Since 1998, the State Administration of Foreign Exchange of China has promulgated a series of circulars
and rules in order to enhance verification of foreign exchange payments under a Chinese entity’s current account items, and
has imposed strict requirements on borrowing and repayments of foreign exchange debts from and to foreign creditors under the capital
account items and on the creation of foreign security in favor of foreign creditors.

This may complicate foreign exchange payments
to foreign creditors under the current account items and thus will affect the ability to borrow under international commercial
loans, the creation of foreign security, and the borrowing of RMB under guarantees in foreign currencies. Furthermore, the value
of RMB may become subject to supply and demand, which could be largely impacted by international economic and political environments. Any
fluctuations in the exchange rate of RMB could have an adverse effect on the operational and financial condition of the Company
and its subsidiaries in China.

You may experience difficulties in
effecting service of legal process, enforcing foreign judgments or bringing original actions based on United States or other foreign
laws against us, our management or the experts named in the prospectus.

We conduct substantially all of our operations
in China and substantially all of our assets are located in China. In addition, almost all of our senior executive officers reside
in China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China
upon our senior executive officers, including with respect to matters arising under U.S. federal securities laws or applicable
state securities laws. Moreover, our PRC counsel has advised us that the PRC does not have treaties with the United States or many
other countries providing for the reciprocal recognition and enforcement of judgment of courts.

Risks Relating to Ownership of Our Securities

Our stock price may be volatile,
which may result in losses to our shareholders.

The stock markets have experienced significant
price and trading volume fluctuations, and the market prices of companies listed on the NASDAQ Capital Market and NASDAQ Global
Market have been volatile in the past and have experienced sharp share price and trading volume changes. Although our stock is
listed on the NASDAQ Global Market, the trading price of our common stock is likely to be volatile and could fluctuate widely in
response to many factors, including the following, some of which are beyond our control:

·

variations in our operating results;

·

changes in expectations of our future financial performance, including financial estimates by securities
analysts and investors;

·

changes in operating and stock price performance of other companies in our industry;

14

·

additions or departures of key personnel; and

·

future sales of our common stock.

Domestic and international stock markets
often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions
unrelated to our performance, may adversely affect the price of our common stock.

Mr. Hu, our CEO, President and Chairman
of our Board of Directors is the beneficial owner of a substantial portion of our outstanding common stock, which may enable Mr.
Hu to exert significant influence on corporate actions.

Excelvantage Group Limited controls approximately
43.7% of our outstanding shares of common stock as of December 31, 2011. On March 29, 2010, Hu Xiaoming, the Company’s Chief
Executive Officer, President and Chairman of the Board of Directors, became the sole stockholder of Excelvantage Group Limited.
Excelvantage Group Limited has a substantial impact on matters requiring the vote of the shareholders, including the election of
our directors and most corporate actions. This control could delay, defer or prevent others from initiating a potential merger,
takeover or other change in our control, even if these actions would benefit our other shareholders and the Company. This control
could adversely affect the voting and other rights of our other shareholders and could depress the market price of our common stock.

Our common shares may become thinly
traded and you may be unable to sell your shares readily

We cannot predict the extent to which an
active public market for trading our common stock will be sustained. Although our trading volume has increased gradually in recent
years, our stock has historically been sporadic or “thinly-traded,” meaning that the number of persons interested in
purchasing our common shares at any given time may be relatively small.

This situation is attributable to a number
of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional
investors and others in the investment community who generate or influence sales volume. Even if we came to the attention
of such persons, those persons tend to be risk-averse and may be reluctant to follow, purchase, or recommend the purchase of shares
of an unproven company such as ours until such time as we become more seasoned and viable. As a consequence, there may be periods
of several days or more when trading activity in our shares is minimal, as compared to a seasoned issuer which has a large and
steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot
give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or
that current trading levels will be sustained.

The market price for our common stock is
particularly volatile given our status as a relatively small company, which could lead to wide fluctuations in our share price.
You may be unable to sell your common stock at or above your purchase price if at all, which may result in substantial losses to
you.

15

Substantial exercise of warrants
could adversely affect our stock price or our ability to raise additional financing in the public capital markets.

As of December 31, 2011, there are 2,827,975
shares of warrants outstanding. If the warrant holders exercise the warrants and sell a substantial number of shares of our Common
Stock in the future, or if investors perceive that these sales may occur, the market price of our Common Stock could decline or
market demand for our Common Stock could be sharply reduced. The exercise of warrants and subsequent sale of a substantial number
of shares of our Common Stock could also adversely affect demand for, and the market price of, our Common Stock. Each of these
transactions could adversely affect our ability to raise additional financing by issuing equity or equity-based securities in the
public capital markets.

We do not anticipate paying any cash
dividends to our common shareholders.

We presently do not anticipate that we
will pay dividends on any of our common stock in the foreseeable future. If payment of dividends does occur at some point in the
future, it would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The
payment of any common stock dividends will be within the discretion of our Board of Directors. We presently intend to retain all
earnings after paying the interest for the preferred stock, if any, to implement our business plan; accordingly, we do not anticipate
the declaration of any dividends for common stock in the foreseeable future.

Fluctuation in the value of the RMB
may have a material adverse effect on your investment.

The change in value of the RMB against
the U.S. dollar, the Euro and other currencies is affected by changes in China’s political and economic conditions,
among other things. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to
the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket
of certain foreign currencies. While the international reaction to the RMB revaluation has generally been positive, there remains
significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in
a further and more significant appreciation of the RMB against the U.S. dollar. As a portion of our costs and expenses is
denominated in RMB, the revaluation in July 2005 and potential future revaluation has and could further increase our costs. In
addition, any significant revaluation of the RMB may have a material adverse effect on our financial condition. For example, to
the extent that we need to convert U.S. dollars we receive from financings into RMB for our operations, appreciation of the
RMB against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if
we decide to convert our RMB into U.S. dollars for the purpose of making payments for business purposes, appreciation of the
U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.

16

We may be unable to maintain compliance
with NASDAQ Marketplace Rules which could cause our common stock to be delisted from the NASDAQ Global Market. This could result
in the lack of a market for our common stock, cause a decrease in the value of our common stock, and adversely affect our business,
financial condition and results of operations.

Under the NASDAQ Marketplace
Rules our common stock must maintain a minimum price of $1.00 per share for continued inclusion on the NASDAQ Global Market. We
cannot guarantee that our stock price will remain at or above $1.00 per share and if the price again drops below $1.00 per share,
the stock could become subject to delisting. If our common stock is delisted, trading of the stock will most likely take place
on an over-the-counter market established for unlisted securities. An investor is likely to find it less convenient to sell, or
to obtain accurate quotations in seeking to buy, our common stock on an over-the-counter market, and many investors may not buy
or sell our common stock due to difficulty in accessing over-the-counter markets, or due to policies preventing them from trading
in securities not listed on a national exchange or other reasons. For these reasons and others, delisting would adversely affect
the liquidity, trading volume and price of our common stock, causing the value of an investment in us to decrease and having an
adverse effect on our business, financial condition and results of operations by limiting our ability to attract and retain qualified
executives and employees and limiting our ability to raise capital.

Volatility in Our Common Share Price
May Subject Us to Securities Litigation.

The market for our common stock is characterized
by significant price volatility as compared to seasoned issuers, and we expect that our share price will continue to be more volatile
than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation
against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of
similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s
attention and resources.

The Elimination of Monetary Liability
Against our Directors, Officers and Employees under Delaware law and the Existence of Indemnification Rights of our Directors,
Officers and Employees May Result in Substantial Expenditures by our Company and may Discourage Lawsuits Against our Directors,
Officers and Employees.

Our articles of incorporation do not contain
any specific provisions that eliminate the liability of our directors for monetary damages to our company and shareholders; however,
we are prepared to give such indemnification to our directors and officers to the extent provided for by Delaware law. We may also
have contractual indemnification obligations under our employment agreements with our officers. The foregoing indemnification obligations
could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors
and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing
a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative
litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit
our company and shareholders.

17

We may need additional capital, and
the sale of additional shares or other equity securities could result in additional dilution to our shareholders.

On January 21, 2010, we entered into a
Securities Purchase Agreement with certain institutional accredited investors pursuant to which the Company sold to these investors
$10 million of senior secured convertible notes and warrants exercisable for an aggregate of 1,379,148 shares of the Company’s
common stock. As of December 31, 2011, $9,999,000 senior secured convertible notes have been converted to common stock. On January
19, 2012, the rest of the $1,000 senior secured convertible notes were converted into common stock.

On December 21, 2010, we agreed to sell
to certain institutional investors up to 3,027,272 shares of the Company’s common stock and warrants to purchase up to 1,210,912
shares of common stock.

As of December 31, 2011, none of the warrants
mentioned above have been exercised. The exercise of these warrants will result in dilution.

In the future, we may require additional
cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may
decide to pursue. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or
debt securities or obtain a credit facility. The sale of additional equity securities could result in dilution to our shareholders.
The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants
that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to
us, if at all.

Our business is subject to changing
regulations related to corporate governance and public disclosure that have increased both our costs and the risk of noncompliance.

Because our common stock is publicly traded,
we are subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection
of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company
Accounting Oversight Board, the SEC and NASDAQ, have issued requirements and regulations and continue to develop additional regulations
and requirements in response to corporate scandals and laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Our
efforts to comply with these regulations have resulted in, and are likely to continue resulting in, increased general and administrative
expenses and diversion of management time and attention from revenue-generating activities to compliance activities. Because new
and modified laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity,
their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This evolution
may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our
disclosure and governance practices.

Item 1B. Unresolved Staff Comments.

Not applicable.

18

Item 2. Properties.

All land in the PRC is owned by the government
and its ownership cannot be sold or transferred by or to any individual or private entity. Instead, the government grants
or allocates landholders a “land use right.” There are four methods to acquire land use rights:

·

grant of the right to use land;

·

assignment of the right to use land;

·

lease of the right to use land; and

·

allocated land use rights

In comparison with Western common law concepts,
granted land use rights are similar to life estates and allocated land use rights are in some ways similar to leaseholds.

Granted land use rights are provided by
the government in exchange for a grant fee, and carry the rights to pledge, mortgage, lease, and transfer within the term of the
grant. Land is granted for a fixed term - generally 70 years for residential use, 50 years for industrial use, and 40 years for
commercial and other use. The term is renewable in theory. Unlike the usual case in Western nations, granted land must be used
for the specific purpose for which it was granted.

Allocated land use rights are generally
provided by the government for an indefinite period (usually to state-owned entities) and cannot be pledged, mortgaged, leased,
or transferred by the user. Furthermore, allocated land can be reclaimed by the government at any time. Allocated land use rights
may be converted into granted land use rights upon the payment of a grant fee to the government.

Kandi has the following granted land use rights:

Location

Area

(square

meters)

Term and Expiration

Certificate No.

Zhejiang Jinhua Industrial Park

72900.90

Nov 13, 2002 - Nov 13, 2052

10-15-0-203-1

Zhejiang Jinhua Industrial Park

39490.64

Nov 13, 2002 - Nov 13, 2052

10-15-0-203-2

Zhejiang Jinhua Industrial Park

46650.70

Dec 30, 2003 - Dec 30, 2053

10-15-0-16

Zhejiang Jinhua Industrial Park

37515.00

Dec 30, 2003 - Dec 30, 2053

10-15-0-17

Zhejiang Jinhua Industrial Park

49162.00

Dec 30, 2003 - Dec 30, 2053

10-15-0-18

Zhejiang Jinhua Industrial Park

19309.00

Dec 07, 2009 - Dec 07, 2059

10-15-0-33

Item 3. Legal Proceedings.

There are two lawsuits currently pending
in state court in Ripley County, Missouri against the Company and its subsidiary, Kandi Vehicles as well as other third parties,
Kandi Investment Group and SunL Group, in connection with the death of two individuals who died on March 3, 2006, while operating
a go-cart that was allegedly manufactured by Kandi Vehicles. Kandi Investment Group was a major shareholder of Kandi
Vehicles but it transferred all its equity in Kandi Vehicles to Continental Development Limited in November 2006. Since then, Kandi
Investment Group has been unrelated to the Company or its affiliates.

19

The cases were filed in 2009 and are identified
as Elder vs. SunL Group and Griffen vs. SunL Group. In March 2010, the local trial court entered two default judgments, each in
the amount of $20,000,000, against our subsidiary, Kandi Vehicles as well as other parties including Kandi Investment. A default
judgment was not entered against the Company. The lawsuit and default judgments were not brought to the Company or Kandi Vehicles’
attention until May or June 2010; the Company was not served with the complaint or notified of the lawsuits and only learned of
their existence and of the default judgments in the course of commercial discussions with another of the defendants in the cases.
The Company and Kandi Vehicles have filed answers to the complaint denying any culpability. In addition, the Company requested
that the court set aside the default judgments against Kandi Vehicles, a request granted, by the court, on February 28, 2011. On
March 3, 2011, the plaintiffs subsequently appealed the court order vacating the default judgments; however, the plaintiffs have
since voluntarily withdrawn their appeal.

The Company intends to defend these cases
vigorously and believes a favorable result is likely in this lawsuit since the Company including its subsidiaries did not manufacture
the subject vehicle in the accident. The Company intends to propound discovery on the plaintiffs and will attempt to
have the cases dismissed by summary judgment, if possible.

At the present time, we believe that resolving
the above matters will not have a material adverse effect on our financial position, our results of operations, or our cash flows;
however, these matters are subject to inherent uncertainties and our view of these matters may change in the future.

Our common stock began trading on the NASDAQ
Capital Market on March 18, 2008, and on January 10, 2011, our common stock began trading on NASDAQ Global Market. The following
are the high and low prices for our common stock for each quarter from January 1, 2009 to December 31, 2011.

HIGH

LOW

FISCAL 2011

Fourth Quarter (through December 31, 2011)

$

4.19

$

1.88

Third Quarter (through September 30, 2011)

$

3.30

$

1.71

Second Quarter (through June 30, 2011)

$

3.23

$

1.68

First Quarter (through March 31, 2011)

$

5.37

$

2.86

FISCAL 2010

Fourth Quarter (through December 31, 2010)

$

7.25

$

4.10

Third Quarter (through September 30, 2010)

$

4.45

$

2.90

Second Quarter (through June 30, 2010)

$

5.19

$

2.75

First Quarter (through March 31, 2010)

$

6.75

$

3.24

FISCAL 2009

Fourth Quarter (through December 31, 2009)

$

6.20

$

1.78

Third Quarter (through September 30, 2009)

$

2.47

$

1.10

Second Quarter (through June 30, 2009)

$

1.74

$

0.78

First Quarter (through March 31, 2009)

$

1.05

$

0.46

Holders of Common Stock

As of December 31, 2011, there were 2,969
record holders of our common stock.

Dividends

We have never paid a dividend on our common
stock. At present, we intend to retain any earnings for use in our business and do not anticipate paying cash dividends in the
foreseeable future.

Item 6. Selected
Financial Data.

Not applicable.

21

Item 7.

Management’s Discussion and Analysis of Financial Condition
and Results of Operation.

The following discussion should be read
in conjunction with the information contained in the consolidated financial statements of the Company and the notes thereto appearing
elsewhere herein. Readers should carefully review the risk factors disclosed in this Form 10-K and other documents filed by the
Company with the SEC.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This section should be read together with
the Summary of Significant Accounting Policies in the attached consolidated financial statements included in this report.

Estimates affecting accounts receivable
and inventories

The preparation of our consolidated financial
statements requires management to make estimates and assumptions that affect our reporting of assets and liabilities (and contingent
assets and liabilities). These estimates are particularly significant where they affect the reported net realizable value of the
Company’s accounts receivable and inventories.

Accounts receivable are recognized and
carried at net realizable value. An allowance for doubtful accounts will be recorded in the period when a loss is probable
based on an assessment of specific evidence indicating troubled collection, historical experience, accounts aging, ongoing business
relation and other factors. Accounts are written off after exhaustive efforts at collection. If accounts
receivable are to be provided for, or written off, they would be recognized in the consolidated statement of operations within
operating expenses. At December 31, 2011 and 2010, the Company has an allowance for doubtful accounts of $0 and $0 respectively,
as per the management’s judgment based on their best knowledge.

Inventory is stated at the lower of cost,
determined on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary
course of business less the estimated cost of completion and the estimated costs necessary to make the sale. When inventories are
sold, their carrying amount is charged to expense in the year in which the revenue is recognized. Write-downs for declines in net
realizable value or for losses of inventories are recognized as an expense in the year the impairment or loss occurs. There was
a $72,487 decline in net realizable value of inventory for the year ended of December 31, 2011 due to our reserve for slow moving
inventory.

While the Company currently believes that
there is little likelihood that actual results will differ materially from these current estimates, if customer demand for our
products decreases significantly in the near future, or if the financial condition of our customers deteriorates in the near future,
the Company could realize significant write downs for slow-moving inventories or uncollectible accounts receivable.

22

Policy affecting recognition of revenue

Among the most important accounting policies
affecting our consolidated financial statements is our policy of recognizing revenue. Revenues represent the invoiced value of
goods sold, recognized upon the shipment of goods to customers, and are recognized when all of the following criteria are met:

1.

Persuasive evidence of an arrangement exists;

2.

Delivery has occurred or services have been rendered;

3.

The seller’s price to the buyer is fixed or determinable; and

4.

Collectability is reasonably assured.

Policy affecting options, warrants
and convertible notes

The Company’s stock option cost is
recorded in accordance with ASC 718 and ASC 505.

The fair value of stock options is estimated
using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility
of the Company’s stock. The expected life assumption is primarily based on the expiration date of the option. The risk-free
interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Stock
option expense recognized is based on awards expected to vest. There were no estimated forfeitures. ASC standards require forfeitures
to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

The Company’s warrant costs are recorded
in liabilities and equities, respectively, in accordance with ASC 480, ASC 505 and ASC 815.

The Company estimates the fair value of
warrants that are classified as a liability using a Black-Scholes-Merton model. The Company’s expected volatility assumption
is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration
date of the warrant. The risk-free interest rate for the expected term of the warrant is based on the U.S. Treasury yield curve
in effect at the time of measurement. Warrants that are freestanding derivatives and classified as liabilities on the balance sheet
are measured at fair value on each reporting date, with decreases in fair value recognized in earnings and increases in fair values
recognized in expenses.

For those warrants that are not considered
derivatives under ASC 815, the Company estimates that the fair value of equity based warrants using the Black-Scholes-Merton model.
The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected
life assumption is primarily based on the expiration date of the warrant. The risk-free interest rate for the expected term of
the option is based on the U.S. Treasury yield curve in effect at the time of grant.

23

In accordance with ASC 815, the conversion
feature of the Convertible Notes is separated from the debt instrument and accounted for separately as a derivative instrument.
On the date the Convertible Notes are issued, the conversion feature was recorded as a liability at its fair value, and future
decreases in fair value are recognized in earnings while increases in fair values are recognized in expenses. The Company used
the Black-Scholes-Merton option-pricing model to obtain the fair value of the conversion feature. The Company’s expected
volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily
based on the expiration date of the conversion features. The risk-free interest rate for the expected term of the conversion features
is based on the U.S. Treasury yield curve in effect at the time of measurement.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Implemented Standards

ASC 105, Generally Accepted Accounting
Principles (“ASC 105”) (formerly Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162) reorganized
by topic existing accounting and reporting guidance issued by the Financial Accounting Standards Board (“FASB”) into
a single source of authoritative generally accepted accounting principles (“GAAP”) to be applied by nongovernmental
entities. All guidance contained in the Accounting Standards Codification (“ASC”) carries an equal level of authority.
Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. Accordingly, all other accounting literature will be deemed “non-authoritative.” ASC 105 is effective
on a prospective basis for financial statements issued for interim and annual periods ending after September 15, 2009. The
Company has implemented the guidance included in ASC 105 as of July 1, 2009. The implementation of this guidance changed the
Company’s references to GAAP authoritative guidance but did not impact the Company’s financial position or results
of operations.

ASC 855, Subsequent Events (“ASC
855”) (formerly Statement of Financial Accounting Standards No. 165, Subsequent Events) includes guidance that was issued
by the FASB in May 2009, and is consistent with current auditing standards in defining a subsequent event. Additionally, the guidance
provides for disclosure regarding the existence and timing of a company’s evaluation of its subsequent events. ASC 855 defines
two types of subsequent events, “recognized” and “non-recognized.” Recognized subsequent events provide
additional evidence about conditions that existed at the date of the balance sheet and are required to be reflected in the financial
statements. Non-recognized subsequent events provide evidence about conditions that did not exist at the date of the balance sheet
but arose after that date and, therefore, are not required to be reflected in the financial statements. However, certain non-recognized
subsequent events may require disclosure to prevent the financial statements from being misleading. This guidance was effective
prospectively for interim or annual financial periods ending after June 15, 2009. The Company implemented the guidance included
in ASC 855 as of July 1, 2009. The effect of implementing this guidance was not material to the Company’s financial
position or results of operations.

24

Recent Accounting Pronouncements

In April 2011, the Financial Accounting
Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) ASU 2011-03, Consideration of Effective
Control on Repurchase Agreements, which deals with the accounting for repurchase agreements and other agreements that both entitle
and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 changes the rules for determining
when these transactions should be accounted for as financings, as opposed to sales. The guidance in ASU 2011-03 is effective for
the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions
or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption
of ASU 2011-03 is not expected to have a material impact on the Company’s financial condition or results of operation.

In May 2011, the FASB issued ASU 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP
and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies some existing concepts, eliminates
wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between
U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and
disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that
are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for the Company beginning after December
15, 2011. The Company does not expect the adoption of ASU 2011-04 to have a material effect on its operating results or financial
position.

In June 2011, FASB issued ASU 2011-05,
Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of
net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or
in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income
as part of the statement of equity. ASU 2011-05 will be effective for the Company beginning after December 15, 2011. The Company
does not expect the adoption of ASU 2011-05 to have a material effect on its operating results or financial position.

In September 2011, the FASB has issued
ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended
to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess
qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less
than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described
in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more
than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after
December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date
before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet
been issued or, for nonpublic entities, have not yet been made available for issuance.

25

In December 2011, the FASB has issued ASU
No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11 is intended
to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of
netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff
associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments
require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are
either (i) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (ii) subject to an enforceable master netting
arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section
815-10-45. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and
interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively
for all comparative periods presented. The Company is evaluating whether the adoption of ASU 2011-04 will have a material effect
on its operating results or financial position; however, the Company does not expect the adoption of ASU No. 2011-11 to have a
material effect on its operating results or financial position.

In December 2011, the FASB has issued ASU
No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications
of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No. 2011-11 is intended
to supersede certain pending paragraphs in Accounting Standards Update No. 2011-05,Comprehensive Income (Topic 220): Presentation
of Comprehensive Income, to effectively defer only those changes in Update 2011-05 that relate to the presentation of reclassification
adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to redeliberate
the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial
statements for public, private, and non-profit entities. All other requirements in ASU No. 2011-05 are not affected by ASU No.
2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate
but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within
those years, beginning after December 15, 2011. The Company does not expect the adoption of ASU No. 2011-11 to have a material
effect on its operating results or financial position.

Other accounting standards that have been
issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected
to have a material impact on the Company’s financial statements upon adoption.

26

RESULTS OF OPERATIONS – YEAR
ENDED DECEMBER 31, 2011 AS COMPARED TO YEAR ENDED DECEMBER 31, 2010

The following table sets forth the amounts
and the percentage relationship to revenues of certain items in our consolidated statements of income for the years ended December
31, 2011 and 2010:

For The Years Ended

December 31, 2011 and 2010

2011

2010

Comparisons

Amount

% of Revenue

Amount

% of Revenue

Change in Amount

Change In %

REVENUES

$

40,177,148

100.0

%

$

42,880,300

100.0

%

$

(2,703,152

)

(6.3

)%

COST OF GOODS SOLD

(30,964,173

)

(77.1

)%

(33,257,851

)

(77.6

)%

2,293,678

(6.9

)%

GROSS PROFIT

9,212,975

22.9

%

9,622,449

22.4

%

(409,474

)

(4.3

)%

Research and Development

(2,304,373

)

(5.7

)%

(1,908,134

)

(4.5

)%

(396,239

)

20.8

%

Selling and Marketing

(414,255

)

(1.0

)%

(1,120,739

)

(2.6

)%

706,484

(63.0

)%

General and Administration

(3,458,388

)

(8.6

)%

(3,371,829

)

(7.9

)%

(86,559

)

2.6

%

INCOME FROM OPERATIONS

3,035,959

7.6

%

3,221,747

7.5

%

(185,788

)

(5.8

)%

Government Grants

298,072

0.7

%

351,343

0.8

%

(53,271

)

(15.2

)%

Investment Income (expense)

(43,043

)

(0.1

)%

(1,771

)

0.0

%

(41,272

)

2,330.4

%

Other Income, Net

717,495

1.8

%

761,960

1.8

%

(44,465

)

(5.8

)%

Interest Income (Expense), Net

255,418

0.6

%

(2,153,018

)

(5.0

)%

2,408,436

(111.9

)%

Change in Fair Value of Financial Instruments

5,401,929

13.4

%

(2,725,987

)

(6.4

)%

8,127,916

(298.2

)%

INCOME (LOSS) BEFORE INCOME TAX

9,665,830

24.1

%

(545,726

)

(1.3

)%

10,211,556

(1,871.2

)%

INCOME TAX (EXPENSE) BENEFIT

(551,060

)

(1.4

)%

(405,713

)

(0.9

)%

(145,347

)

35.8

%

NET INCOME

$

9,114,770

22.7

%

$

(951,439

)

(2.2

)%

$

10,066,209

(1,058.0

)%

27

Revenues

For the twelve months ended December 31,
2011, our revenues decreased by 6%, from $42,880,300 to $40,177,148, compared to 2010. This was primarily due to the decreased
sales of UTVs and go-karts, which was affected by the global economic fluctuations; details are described below.

During the twelve months ended December
31, 2011, the market condition for ATV products continued to recover. The Company continued to develop price competitive products
to meet market demands, causing good results and successfully increasing the Company’s sales. Revenues from our ATVs experienced
an increase of $1,133,532, or 30.5% in fiscal year ended December 31, 2011 over the comparable period, which was attributable to
a 70% increase in unit sales from 5,868 units in the fiscal year of 2010 to 9,958 units in 2011, and the effect of a 23% unit price
reduction.

Because the Company has shifted its focus
of super-mini cars from the overseas market to the domestic Chinese market, and as governments at different levels had not determined
the supporting policies until October 2011, the Company has not realized mass unit sales during this reporting period. For the
fiscal year ended December 31, 2011, revenues from our super-mini car, dropped by $546,483, or 8% from the same period in 2010,
which was attributable to a 33% decrease in unit sales from 1,618 units in the year of 2010 to 1,077 units in 2011. For the twelve
months ended December 31, 2011, the average unit price increased 38%, primarily because the super-mini cars the Company sold during
this period have enhanced features and performance. Since October 12, 2011, the Zhejiang Province government and Jinhua City government
have formally begun to provide subsidies to buyers that purchase our super-mini cars. The Company remains optimistic about EV sales
based on developments in the Jinhua market, as well as the expected launch in the Hangzhou market.

In 2011, our go-karts experienced a decrease
in revenue of $2.5 million or 10% from fiscal year 2010, which was mainly attributable to a 9% decrease in unit sales, from 28,366
units in 2010 to 25,757 units in 2011. This is because in year 2010, especially in the fourth quarter of 2010, the improved
market condition, which had been suppressed during the financial crisis, had created a large increase in demand, especially for
middle and small size products, while in year 2011, this demand retreated a bit after the peak.

UTVs experienced a significant decrease
in revenues from $4,839,256 to $2,696,106. This 44% decrease is due to a 47% drop in unit sales, from 2,270 units in 2010 to 1,198
units in 2011. This significant drop is primarily because of the continuing high competition in this UTV market. Additionally,
the UTV manufactured by the Company is relatively high end and more expensive, which affected the sales. At this moment, the Company
continues to develop new products and enhance existing products to meet the future demands in UTV markets. Those new products that
have been introduced to the market have generated positive feedback. The UTVs’ sales in the second half of 2011 have shown
signs of reversing the decreasing trend of UTV sales.

28

The TT is changing from a recreational
vehicle that is not street legal to a formal vehicle subject to additional certification. This role-changing period caused the
revenues from our TT to drop by $496,578, or 24%, from the fiscal year 2010 to $1,592,770 in fiscal year 2011, which was attributable
to a 15% decrease in unit sales from 917 units in 2010 to 782 units in 2011. In responding to this market situation, the Company
modified and improved the TT’s design and quality in the first half of 2011, which resulted in a good sales performance in
the second half of 2011 compared to 2010, but this was not enough to make up for the significant decrease caused in the first six
months of 2011. Currently the Company is preparing for the above-mentioned certification and the Company believes obtaining certification
will positively impact the Company’s future performance.

Refitted car

For the fiscal year ended December 31,
2011, the Company also refitted other companies’ vehicles to meet special requirements for certain customers. The Company
expects to expand this new business and stimulate the Company’s development.

The following table lists the number of
vehicles sold and sales revenue, categorized by vehicle type, within the twelve months ended December 31, 2011 and 2010:

The year ended December 31

2011

2010

Unit

Revenue

Unit

Revenue

All-terrain Vehicles (ATVs)

9,958

$

4,850,425

5,868

$

3,716,893

Super-mini-cars 1

1,077

6,253,517

1,618

6,800,000

Go-Karts

25,757

22,923,669

28,366

25,434,803

Utility vehicles (UTVs)

1,198

2,696,106

2,270

4,839,256

Three-wheeled motorcycles (TT)

782

1,592,770

917

2,089,348

Refitted cars

70

1,860,661

-

-

Total

38,842

$

40,177,148

39,039

$

42,880,300

1)

Includes the CoCo, EV and mini-car

Cost of Goods Sold

Cost of goods sold during the year ended
December 31, 2011 was $30,964,173 representing a 7% decrease from $33,257,851 last year, which corresponds to the decrease in sales.
Cost of goods sold as a percentage of revenues was 77.1% for 2011 as compared to 77.6% for the year 2010, which reflects the Company’s
increased operating efficiency and manufacturing cost management.

Gross profit

Gross profits decreased by $409,474, or
4%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This decrease was primarily due to the
decreased net sales although the gross margin has increased from 22.4% in year 2010 to 22.9% in year 2011. This is mainly because
the Company has put more efforts and resources into developing and promoting products with higher gross margins, and more importantly,
the Company has achieved more effective manufacturing cost management.

29

Selling and Marketing

Selling and distribution expenses were
$414,255 for fiscal year ended December 31, 2011, as compared to $1,120,739 from the same period in 2010, representing a 63% decrease.
The significant decrease in these expenses was primarily attributable to the inclusion of expenses related to the options issued
to consultants for their services assisting the Company in expanding within the Chinese market for the year ended December 31,
2010, which was not present in the corresponding 2011 period. Excluding the $808,223 option related expense, the net selling and
distribution expense for fiscal year 2010 was $312,516, which represents a 33% increase in selling and distribution expense for
the year 2011 compared to the year 2010, primarily attributable to the increases in our sales force, higher advertising fees, transportation
fees and custom inspection fees.

General and Administrative

General and administrative expenses increased
3% during the fiscal year ended December 31, 2011, from $3,371,829 to $3,458,388. In addition to cash cost related to general and
administrative expenses, in 2010, the general and administrative expenses included $549,494 in expenses for common stock
awards to consultants for financing and investor relations services, while in year 2011, the stock awards related expense was $70,781.
Additionally, the general and administrative expenses also included $252,632 in stock-based compensation costs for the options
issued to the Company’s executives and managerial level employees, while for the same period of last year, this stock based
compensation cost was $630,350. Excluding the effect of stock award cost and option cost, the net general and administrative expenses
for the year ended December 31, 2011 was $3,134,975, increased 43% from $2,191,985 for the same period in 2010. This increase was
primarily due to the increase in expenses incurred by the Company’s increased activities in capital markets, such as legal
fees and investor relations costs, and a land use tax charged by the government, which the Company began paying in the third quarter
of 2011. In addition, in 2011, the general and administrative expenses included an expense for slow moving inventory.

Research and Development

For the year ended December 31, 2011, research
and development expenses increased $396,239 , or 21%, to $2,304,373 from $1,908,134 for the year ended December 31, 2010. This
increase was primarily due to additional research and development efforts on new products and on quality improvement on existing
products. In the fiscal year 2011, the Company strengthened its research and development for EVs equipped with lithium batteries
in order to seek the leading position in the new EV market. Currently, there are two new models of EVs equipped with lithium batteries
that are in the process of being researched and developed, both of which we expect to launch in 2013 or 2014. In addition, the
Company successfully developed new models of ATVs, go-karts and other products.

Government grants

Government grants totaled $298,072 for
the year ended December 31, 2011, representing a 15% decrease over the same period in 2010. For the year ended December
31, 2011, the government grants included $277,129 in subsidies for technology innovation and patent applications, and $20,943 export
subsidies.

30

Investment income (loss)

Investment loss was ($43,043) for the year
ended December 31, 2011, compared to loss of ($1,771) for the corresponding period in 2010. For the twelve months ended December
31, 2011, the investment loss included a loss of ($52,696) as a result of our 30% equity interest investment in Jinhua Service
and an income of $9,653 from trading securities, which was ($1,771) for year 2010. During the fiscal year 2011, Jinhua Service
was in the initial launching period, so Jinhua Service recorded a net loss; however, the Company believes Jinhua Service should,
in the near future, generate a profit.

Other Income, Net

Net other income was $717,495 for the year
ended December 31, 2011, compared to $761,960 for the year ended December 31, 2010, a decrease of $44,465 or 6%. This
decrease is primarily because, compared to fiscal year 2010, the write off of other payables which had not been claimed for more
than 3 years as of December 31, 2011 has decreased $322,225 compared to year 2010.

Interest Income (Expense), Net

Net interest income was $255,418 for the
year ended December 31, 2011, significantly changed from a net expense of ($2,153,018) for the year ended December 31, 2010. For
the fiscal year ended December 31, 2011, the interest expense for convertible notes was ($135), and the interest incurred by the
amortization of debt discount was ($659) since only $1,000 of convertible notes were outstanding as of December 31, 2011. For the
same period of last year, the interest for the convertible notes was ($355,727), and the interest incurred by the amortization
of debt discount was ($855,696). Excluding the effects of interest expense related to convertible notes, the net interest income
for this reporting period was $256,212, a significant change from ($941,595) net interest expense for the same period in 2010.
This change was mainly attributed to the interest income generated from the notes receivable issued to third parties, which was
$2,066,941 for fiscal year 2011.

Change in Fair Value of Financial
Instruments

For the year ended December 31, 2011, the
interest income, which was caused by the decrease of fair value of warrants issued to investors and placement agents, and the changes
of fair value of conversion features embedded in convertible notes, was $5,401,929, while for the same period last year, the interest
expense, which was caused by the increase in fair value of financial instruments, was ($2,725,987). This significant change was
primarily due to the lower stock price as of December 31, 2011.

31

Income Taxes

On March 16, 2007, the National People’s
Congress of the PRC adopted a new corporate income tax law in its fifth plenary session. The new corporate income tax law unifies
the application scope, tax rate, tax deduction and preferential policy for both domestic and foreign-invested enterprises.
The new corporate income tax law took effect on January 1, 2008. In accordance with the relevant tax laws and regulations of the
PRC, Kandi’s applicable corporate income tax rate is 25%. However, a foreign-invested company which registered with the PRC
government before March 16, 2007 is still permitted to apply the former corporate income tax rules. Thus, our Company was exempt
from corporate income tax for 2007 and 2008 and is also entitled to a 50% tax reduction for 2009, 2010 and 2011, for which the
tax rate is 12.5%.

Kandi New Energy is a subsidiary of the
Company and its applicable corporate income tax rate is 25%. However, because Kandi New Energy’s profit was below a special
standard amount in 2010, which rendered it to enjoy an initial tax benefit of 50% reduction in taxable income and tax at 20% reduced
rate in 2011, with effective tax rate at 10%. The special reduced CIT tax rate benefit is only lasts for one year. In 2012, the
tax rate will go back to normal at 25%.

The Company had a tax expense of $551,060
for the year ended December 31, 2011 and had a tax expense of $405,713 for the year ended December 31, 2010.

Net Income (Loss)

For the fiscal year ended December 31,
2011, the Company generated a net income of $9,114,770, a significant improvement from a net loss of ($951,439) in year 2010. The
improvement was primarily caused by the change in fair value of financial derivatives and due to the significant decreases in interest
expense, and selling and distribution expenses, which included higher option related expenses in the year in 2010.

Excluding the effects of option related
expenses, which was $252,632 and $1,438,573 for the fiscal year 2011 and 2010 respectively, the stock award expense, which was
$70,781 and $549,494 for the year 2011 and 2010 respectively, the Convertible Note’s interest expense, which was $135 and
$355,727 for years 2011 and 2010, respectively, the effect caused by amortization of discount on Convertible Notes, which was $659
and $855,696 for year 2011 and 2010, respectively, and the change of the fair value of financial derivatives, which was $5,401,929
income and $2,725,987 expense for years 2011 and 2010, respectively, the Company’s net income for the year ended December
31, 2011, was $4,037,048, a decrease of 19% as compared with net income of $4,975,809 for the same period of 2010 excluding the
same effects. This decrease is primarily due to the increase of general and administrative expenses, research and development expenses,
and the decrease in gross profit although it was also offset by the increase in interest income generated from the notes receivable
issued to third parties. As of January 19, 2012, all of the Convertible Notes had been converted.

Summary of 4th Quarter Results

For the three months ended December 31,
2011, our revenue decreased by 21% from $14,345,368 to $11,387,382, mainly due to the decreased sales of go-kart products. The
cost of goods sold also decreased 21% during the same period, while gross profit decreased $619,762, or 20%, from 3,103,859 in
the corresponding period last year to $2,484,097 in the fourth quarter of 2011.

32

For the three months ended December 31,
2011, the general and administrative expenses decreased 16% to $889,971, mainly because of the decrease of expenses of options
issued to directors and employees. Selling and distribution expenses increased 47%, primarily due to more advertising and exhibition
related activities. For the three months ended December 31, 2011, we incurred a non-cash charge of $2,079,063 relating to the change
in fair value of financial instruments, which was an expense of $1,923,103 for the same period in 2010.

For the three months ended December 31,
2011, the company recorded a net loss of ($829,831), compared to a net loss of ($219,138) for the same period of last year. Excluding
the effects of option related expenses, stock award expenses, Convertible Notes interest expense, the effects caused by the amortization
of discount on Convertible Notes, and the change in the fair value of financial derivative, for the three months ended December
31, 2011, the Company recorded a net income of $1,346,907, a 31% decrease from net income of $1,940,413 for the same period in
2010, excluding the same effects. This decrease is primarily due to the decreased gross profit.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

Net cash provided by operating activities
was $12,642,070 for the year ended December 31, 2011, as compared to net cash provided by operating activities of $4,440,551 for
the year ended December 31, 2010. The difference is mainly because, for the year ended December 31, 2011, the change in accounts
receivable caused a net cash inflow of $4,647,184, compared to a net cash outflow of ($1,572,489) for the same reporting period
in 2010.

Net cash used in investing activities was
($22,330,894) for the year ended December 31, 2011 as compared to net cash flow used in investing activities of ($25,821,359) for
the same reporting period in 2010. This was primarily due to (1) ($9,839,388) net cash outflow for purchases of construction in
progress, and (2) a net cash outflow of ($11,845,363) in note receivable, as compared to a net cash outflow in notes receivable
of ($21,966,427) for the same period last year.

Net cash flow provided by financing activities
was $4,333,237 for the year ended December 31, 2011, as compared to net cash flow provided by financing activities of $28,960,121
for the same period of 2010. This change is primarily attributable to the Company’s completion of two rounds of financing
through direct stock market financing and converting the Convertible Notes in year 2010, while there was no fund raising in year
2011.

Working Capital

The Company had a working capital
surplus of $17,466,812 as of December 31, 2011, a decrease from a working capital surplus of $18,522,694 as of December 31, 2010,
which was principally due to the Company using part of the proceeds raised in the Company’s equity offerings in 2010 to purchase
construction in progress and fixed assets.

33

As of December 31, 2011, the Company had
credit lines from commercial banks for $44,306,880, of which $33,230,160 had been used as of December 31, 2011. The Company believes
that its cash flows generated internally may not be sufficient to support growth of future operations and repay short term bank
loans for the next twelve months, if needed. However, the Company believes its access to existing financing sources and established
relationships with PRC banks will enable it to meet its obligations and fund its ongoing operations.

The Company has historically financed itself
through short-term commercial bank loans from PRC banks. The term of these loans is typically for one year, and upon
the payment of all outstanding principal and interest in a respective loan, the banks have typically rolled over the loans for
additional one-year terms, with adjustments made to the interest rate to reflect prevailing market rates. The Company believes
this situation has not changed and the short-term bank loans will be available on normal trade terms if needed.

Off-balance Sheet Arrangements

(a)

Guarantees and Pledged collateral for third party bank loans

As of December 31, 2011, the Company provided
guarantees for the following third parties:

(1)

Guarantees for bank loans

Guarantee provided to

Amount

Zhejiang Kangli Metal Manufacturing Company

$

4,713,498

Zhejiang Shuguang industrial Co., Ltd.

7,855,830

Zhejiang Yiran Auto Sales Company

1,571,166

Zhejiang Taiping Shengshi Industrial Co., Ltd.

3,142,332

Zhejiang Taiping Trade Co., Ltd

3,613,682

Yongkang Angtai Trade Co., Ltd.

785,583

Total

$

21,682,091

On December 4, 2011, the Company entered
into a guarantee contract to serve as the guarantor for the bank loan borrowed from Shanghai Bank Hangzhou branch in the amount
of $4,713,498 by Zhejiang Kangli Metal Manufacturing Company (“ZKMMC”) for the period from December 4, 2011 to December
4, 2012. ZKMMC is not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZKMMC
under the loan contract, if ZKMMC fails to perform its obligations as set forth in the loan contract.

On October 9, 2011 and December 8, 2011,
the Company entered into two guarantee contracts to serve as the guarantor for the bank loans borrowed from Shenzhen Development
Bank Hangzhou branch and Huaxia Bank Hangzhou branch in the amount of $4,713,498 and $3,142,332 by Zhejiang Shuguang industrial
Co., Ltd. (“ZHICL”) for the period from October 9, 2011 to October 9, 2012 and from December 8, 2011 to December 8,
2012, respectively. ZHICL is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations
of ZHICL under the loan contracts, if ZHICL fails to perform its obligations as set forth in the loan contracts.

34

On April 25, 2011, the Company entered
into a guarantee contract to serve as the guarantor for the bank loans borrowed from Shanghai Pudong Development Bank Hangzhou
branch in the amount of $1,571,166 by Zhejiang Yiran Auto Sales Company (“ZYASC”) for the period April 25, 2011 to
April 25, 2012. ZYASC is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations
of ZYASC under the loan contracts, if ZYASC fails to perform its obligations as set forth in the loan contracts.

On December 4, 2011, the Company entered
into a guarantee contract to serve as the guarantor for the bank loans borrowed from Shanghai Bank Hangzhou branch in the amount
of $3,142,332 by Zhejiang Taiping Shengshi Industrial Co., Ltd. (“ZTSICL”) for the period from December 4, 2011 to
December 4, 2012. ZTSICL is not related to the Company. Under this guarantee contract, the Company shall perform all obligations
of ZTSICL under the loan contract, if ZTSICL fails to perform its obligations as set forth in the loan contract.

On August 12, 2011, the Company entered
into a guarantee contract to serve as the guarantor for the bank loans borrowed from ICBC Wuyi branch in the amount of $3,613,682
by Zhejiang Taiping Trade Co., Ltd (“ZTTCL”) for the period from August 12, 2011 to August 8, 2013. ZTTCL is not related
to the Company. Under this guarantee contract, the Company shall perform all obligations of ZTTCL under the loan contract, if ZTTCL
fails to perform its obligations as set forth in the loan contract.

On January 7, 2011, the Company entered
into two guarantee contracts to serve as the guarantor for the bank loans borrowed from China Communication Bank Jinhua Branch
in the amount of $157,117 and $628,466, respectively, by Yongkang Angtai Trade Co., Ltd. (“YATCL”) for the period from
January 7, 2011 to December 31, 2012. YATCL is not related to the Company. Under these guarantee contracts, the Company shall perform
all obligations of YATCL under the loan contracts, if YATCL fails to perform its obligations as set forth in the loan contracts.

(2)

Guarantees for Bank notes:

Guarantee provided to

Amount

Zhejiang Mengdeli Electric Co., Ltd.

$

1,256,933

Total

$

1,256,933

On August 24, 2010, the Company entered
into a guarantee contract to serve as guarantor for the bank note borrowed from Huaxia Bank Hangzhou branch in the amount of $1,256,933
by Zhejiang Mengdeli Electric Co., Ltd. (“ZMEC”) for the period from August 24, 2010 to August 24, 2012. ZMEC is a
supplier but not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZMEC under
the loan contract, if ZMEC fails to perform its obligations as set forth in the loan contract.

35

(3)

Pledged collateral for a third party’s bank loans

As of December 31, 2011, the Company pledged
its land use rights and plant and equipment as collateral for the following third party:

Zhejiang Mengdeli Electric Co., Ltd.:

Land use rights net book value

$

6,935,129

Plant and equipment net book value

$

4,624,347

It is a common business practice among
companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given. It
is considered a “favor for favor” business practice and is commonly required by the lending banks as in these cases.
These companies provided guarantees for the Company’s bank loans as well. The banks involved in these guarantee transactions
typically allow a maximum loan amount based on a 30% to 70% discount on the net book value of the pledged collateral. For additional
details on the guarantees, see Note 15 and Note 20 to the Company’s Consolidated Financial Statement.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8.

Financial Statements and Supplementary Data.

36

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2011 AND 2010

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONTENTS

PAGE

F-2

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

PAGES

F-3-4

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010

PAGES

F-5

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

PAGE

F-6

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

PAGES

F-7-8

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

PAGES

F-9-47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

ALBERT WONG & CO.

CERTIFIED PUBLIC ACCOUNTANTS

7th Floor, Nan Dao Commercial Building

359-361 Queen’s Road Central

Hong Kong

Tel : +852 2851 7954

Fax: +852 2545 4086

ALBERT WONG

B.Soc., Sc., ACA., LL.B.,

CPA(Practising)

F-1

To: The board of directors and stockholders
of

Kandi Technologies, Corp. and Subsidiaries

Report of Independent Registered Public
Accounting Firm

We have audited the accompanying consolidated
balance sheet of Kandi Technologies, Corp. and subsidiaries (“the Company”) as of December 31, 2011 and 2010 and the
related consolidated statements of income, stockholders’ equity and cash flow for the years then ended. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

We were not engaged to examine management’s
assertion about the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 included
in the Company’s Item 9A “Controls and Procedures” in the Annual Report on Form 10-K and, accordingly,
we do not express an opinion thereon.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of Kandi Technologies,
Corp. as of December 31, 2011 and 2010 and the results of its operations and its cash flow for the years then ended in conformity
with accounting principles generally accepted in the United States of America.

Hong Kong, China

/s/ Albert Wong & Co.

March 30, 2012

Certified Public Accountants

F-2

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

December 31,

December 31,

2011

2010

CURRENT ASSETS

Cash and cash equivalents

$

2,294,352

$

7,754,166

R Restricted cash

6,634,989

17,398,087

Accounts receivable

12,932,776

16,999,430

InInventories (net of reserve for slow moving inventory of $72,487 and $0 as of December 31, 2011 and 2010 respectively

6,674,467

5,886,506

Notes receivable

37,879,243

24,865,989

Other receivables

2,438,917

814,327

Prepayments and prepaid expenses

185,037

97,298

Due from employees

79,857

36,385

Advances to suppliers

852,638

188,585

Marketable securities (trading)

-

300,675

Total Current Assets

69,972,276

74,341,448

LONG-TERM ASSETS

Plant and equipment, net

20,981,893

23,911,626

Land use rights, net

10,992,769

10,833,452

Construction in progress

10,007,601

-

Deferred taxes

89,998

255,948

Investment in associated companies

229,213

272,241

Total Long-Term Assets

42,301,474

35,273,267

TOTAL ASSETS

$

112,273,750

$

109,614,715

See notes to consolidated financial statements

F-3

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’
EQUITY

December
31,

December
31,

2011

2010

CURRENT LIABILITIES

Accounts payable

$

5,061,069

$

6,452,652

Other payables and accrued expenses

3,137,983

794,625

Short-term bank loans

36,372,492

28,434,012

Customer deposits

1,025,357

82,127

Notes payable, net of discount of $71 and $0 as of December 31, 2011 and 2010 respectively

5,847,552

19,039,898

Income tax payable

153,730

127,339

Due to employees

9,455

12,767

Due to related party

841,251

841,251

Deferred taxes

56,362

34,083

Financial derivate - liability

213

-

Total Current Liabilities

52,505,464

55,818,754

LONG-TERM LIABILITIES

Note payable, net of discount of $0 and $730 as of December 31, 2011 and 2010 respectively

Retained earnings (the restricted portion is $1,940,832 and $1,319,067 at December 31, 2011 and December 31, 2010, respectively)

19,210,330

10,095,560

Accumulated other comprehensive income

5,077,721

3,261,082

TOTAL STOCKHOLDERS’ EQUITY

55,848,875

44,474,138

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

112,273,750

$

109,614,715

See notes to consolidated financial statements

F-4

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

2011

2010

REVENUES, NET

$

40,177,148

$

42,880,300

COST OF GOODS SOLD

(30,964,173

)

(33,257,851

)

GROSS PROFIT

9,212,975

9,622,449

Research and development

(2,304,373

)

(1,908,134

)

Selling and marketing

(414,255

)

(1,120,739

)

General and administrative

(3,458,388

)

(3,371,829

)

INCOME FROM CONTINUING OPERATIONS

3,035,959

3,221,747

Interest income

2,200,678

769,942

Interest (expense)

(1,945,260

)

(2,922,960

)

Government grants

298,072

351,343

Investment income (expense) in trading security

9,653

(1,771

)

Other, net

717,495

761,960

Change in fair value of financial instruments

5,401,929

(2,725,987

)

Investment (loss) in associated companies

(52,696

)

-

INCOME (LOSS) BEFORE INCOME TAXES

9,665,830

(545,726

)

INCOME TAX EXPENSE

(551,060

)

(405,713

)

NET INCOME

9,114,770

(951,439

)

OTHER COMPREHENSIVE INCOME

Foreign currency translation

1,816,639

1,323,814

COMPREHENSIVE INCOME

$

10,931,409

$

372,375

WEIGHTED AVERAGE SHARES OUTSTANDING BASIC

27,438,725

22,173,550

WEIGHTED AVERAGE SHARES OUTSTANDING DILUTED

28,735,748

22,173,550

NET INCOME PER SHARE, BASIC

$

0.33

$

(0.04

)

NET INCOME PER SHARE, DILUTED

$

0.32

$

(0.04

)

See notes to consolidated financial statements

F-5

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

Common Stock

Additional
Paid-in

Retained

Accumulated
Other Comprehensive

Shares

Par Value

Capital

Earnings

Income

Total

BALANCE
AT DECEMBER 31, 2009

19,961,000

$

19,961

$

8,967,012

$

11,046,999

$

1,937,268

$

21,971,240

Stock issuance, warrant and stock option exercise

7,435,101

7,435

23,994,514

-

-

24,001,949

Warrant issuance

(3,309,999

)

(3,309,999

)

Stock option issuance

-

-

1,438,573

-

-

1,438,573

Foreign currency translation gain

-

-

-

-

1,323,814

1,323,814

Net income

-

-

-

(951,439

)

-

(951,439

)

BALANCE AT DECEMBER
31, 2010

27,396,101

$

27,396

$

31,090,100

$

10,095,560

$

3,261,082

$

44,474,138

Stock issuance, warrant and stock option exercise

49,499

50

65,495

-

-

65,545

Deferred tax effect

125,151

125,151

Stock option issued

-

-

252,632

-

-

252,632

Foreign currency translation gain

-

-

-

-

1,816,639

1,816,639

Net income

-

-

-

9,114,770

-

9,114,770

BALANCE
AT DECEMBER 31, 2011

27,445,600

$

27,446

$

31,533,378

$

19,210,330

$

5,077,721

$

55,848,875

See notes to consolidated financial statements

F-6

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

9,114,770

$

(951,439

)

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

4,696,848

4,714,058

Provision for doubtful accounts

Deferred taxes

207,327

(62,231

)

Change in value of financial instruments

(5,401,929

)

2,725,987

Loss in investment (including investment in associated company)

52,696

1,771

Notes and warrant issuance payments

-

(1,992,250

)

Option cost

252,632

1,438,573

Changes in operating assets and liabilities, net of effects of acquisition:

(Increase) Decrease In:

Accounts receivable

4,647,184

(1,572,489

)

Inventories

(550,024

)

(312,357

)

Other receivables

(1,566,603

)

(470,573

)

Due from employees

(45,096

)

(83,633

)

Prepayments and prepaid expenses

(730,321

)

923,818

Marketable equity securities (trading)

307,098

(293,269

)

Increase (Decrease) In:

Accounts payable

(1,614,496

)

1,514,332

Other payables and accrued liabilities

2,326,656

(1,101,042

)

Customer deposits

924,241

40,394

Income tax payable

21,087

(79,099

)

Net cash (used in) provided by operating activities

12,642,070

4,440,551

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of plant and equipment

(646,143

)

(3,589,396

)

Addition to construction in progress

(9,839,388

)

-

Investment in a subsidiary, net of cash acquired

-

(265,536

)

Issuance of notes receivable

(22,992,866

)

(24,253,579

)

Repayments of notes receivable

11,147,503

2,287,152

Net cash provided by (used in) investing activities

(22,330,894

)

(25,821,359

)

See notes to consolidated financial statements

F-7

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

2011

2010

CASH FLOWS FROM FINANCING ACTIVITIES:

Restricted cash

11,246,288

(11,215,423

)

Proceeds from short-term bank loans

48,891,560

43,370,828

Repayments of short-term bank loans

(42,171,867

)

(42,190,669

)

Proceeds from notes payable

35,562,160

38,897,363

Repayments of notes payable

(49,260,448

)

(28,325,317

)

Option exercise & other financing

65,544

1,774,343

Stock market financing and Note conversion

-

26,648,996

Net cash provided by financing activities

4,333,237

28,960,121

NET DECREASE IN CASH AND CASH EQUIVALENTS

(5,355,587

)

7,579,313

Effect of exchange rate changes on cash

(104,227

)

(43,354

)

Cash and cash equivalents at beginning of year

7,754,166

218,207

CASH AND CASH EQUIVALENTS AT END OF YEAR

$

2,294,352

$

7,754,166

SUPPLEMENTARY CASH FLOW INFORMATION

Income taxes paid

$

529,973

$

484,812

Interest paid

$

2,509,808

$

1,507,261

SUPPLEMENTAL NON-CASH DISCLOSURES:

During the years ended December 31, 2011 and
2010, $0 and $0 were transferred from construction in progress to plant and equipment, respectively.

See notes to consolidated financial statements

F-8

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

The Company (formerly, known as Stone Mountain
Resources, Inc.) was incorporated under the laws of the State of Delaware on March 31, 2004. On August 13, 2007, the Company changed
its name from Stone Mountain Resources, Inc. to Kandi Technologies, Corp.

On June 29, 2007, the Company executed
an exchange agreement to acquire 100% of Continental Development Limited, a Hong Kong corporation and its wholly owned subsidiary
Zhejiang Kandi Vehicles Co., Ltd. (“Zhejiang Kandi”).

The Company’s organization chart as
of this reporting date is as follows:

Zhejiang Kandi Vehicles Co. Ltd. has a
50% ownership and controlled the Board of Directors in Kandi New Energy. Under Share Escrow and Trust Agreement, Loan Agreement,
Contractor Agreement, between Zhejiang Kandi and other equity owner, Zhejiang Kandi Vehicles Co. Ltd. is entitled to 100% of the
economic benefits, voting rights and residual interests (100% profits and loss absorption rate) in Kandi New Energy.

The primary operations of the Company are
designing, developing, manufacturing, and commercializing of all-terrain vehicles, go-karts, and specialized automobile related
products for the PRC and global markets.

F-9

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 2 - LIQUIDITY

The Company had a working capital
surplus of $17,466,812 at December 31, 2011, a decrease from a working capital surplus of $18,522,694 as of December 31, 2010,
which was principally due to the Company using part of the proceeds raised in Company’s equity offerings in 2010 to purchase
construction in progress and fixed assets.

As of December 31, 2011, the Company has
credit lines from commercial banks for $44,306,880, of which $33,230,160 was used at December 31. The Company believes that its
cash flows generated internally may not be sufficient to sustain operations and repay short term bank loans for the next twelve
months. However, the Company believes its access to existing financing sources and established relationships with PRC banks will
enable it to meet its obligations and fund its ongoing operations.

The Company has historically financed itself
through short-term commercial bank loans from PRC banks. The term of these loans is typically for one year, and upon
the payment of all outstanding principal and interest in a respective loan, the banks have typically rolled over the loans for
additional one-year terms, with adjustments made to the interest rate to reflect prevailing market rates. The Company believes
this situation has not changed and the short-term bank loan will be available on normal trade terms if needed.

NOTE 3 - BASIS OF PRESENTATION

The Company maintains its general ledger
and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations
of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States
of America and have been consistently applied in the presentation of financial statements.

F-10

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 4 – PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include
the accounts of Kandi Technologies, Corp., and the following subsidiaries:

(i)

Continental Development Ltd., (“Continental”) (a wholly-owned subsidiary of the Company)

Inter-company accounts and transactions
have been eliminated in consolidation.

NOTE 5 – USE OF ESTIMATES

The preparation of financial statements
in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management makes
these estimates using the best information available at the time the estimates are made; however actual results when ultimately
realized could differ from those estimates.

NOTE 6 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

(a) Economic and Political
Risks

The Company’s operations are conducted
in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political,
economic and legal environments in the PRC, and by the general state of the PRC economy.

F-11

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 6 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

Our operations are conducted mainly in
the PRC. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in
Renminbi (“RMB”), which is our functional currency. Accordingly, our operation results are affected by changes in the
exchange rate between the U.S. dollar and those currencies.

The Company’s operations in the PRC
are subject to special considerations and significant risks not typically associated with companies in North America and Western
Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange.
The Company’s performance may be adversely affected by changes in the political and social conditions in the PRC, and by
changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances
abroad, and rates and methods of taxation, among other things.

(b) Fair Value of Financial Instruments

ASC 820 “Fair Value Measurement and
Disclosures” establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The
hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable
in the market.

These tiers include:

·

Level 1—defined as observable inputs such as quoted prices in active markets;

·

Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

·

Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The assets measured at fair value on a
recurring basis subject to the disclosure requirements of ASC 820 as of December 31, 2011 are as follows:

F-12

Fair Value Measurements at Reporting Date Using Quoted
Prices in

Carrying value as of December 31, 2011

Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Cash and cash equivalents

$

2,294,352

$

2,294,352

-

-

Restricted cash

$

6,634,989

6,634,989

-

-

Conversion features

$

213

-

$

213

-

Warrants (liability)

$

3,919,411

-

$

3,919,411

-

Cash and cash equivalents consist primarily
of high rated money market funds at a variety of well-known institutions with original maturities of three months or less. Restricted
cash represents time deposits on account, some of which is used to secure short-term bank loans and notes payable. The original
cost of these assets approximates fair value due to their short term maturity.

Warrants and conversion features embedded
in the Convertible Notes, which are accounted as liabilities, are treated as derivative instruments, which will be measured at
each reporting date for their fair value using Level 2 inputs. Also see Note 6 section (t) and (u).

The Company’s non-financial assets
are measured on a recurring basis. These non-financial assets are measured for impairment annually on the Company’s measurement
date at the reporting unit level using Level 3 inputs. For most assets, ASC 820 requires that the impact of changes resulting from
its application be applied prospectively in the year in which the statement is initially applied.

The Company’s non-financial assets
measured on a non-recurring basis include the Company’s property, plant and equipment and finite-use intangible assets which
are measured for recoverability when indicators for impairment are present. ASC 820 requires companies to disclose assets and liabilities
measured on a non-recurring basis in the period in which the remeasurement at fair value is performed. The Company has reviewed
its long-lived assets as of December 31, 2011 and determined that there are no significant assets to be tested for recoverability
under ASC 360 and as such, no fair value measurements related to non-financial assets have been made during the twelve months ended
December 31, 2011.

(c) Cash and Cash Equivalents

The Company considers highly liquid investments
purchased with original maturities of three months or less to be cash equivalents.

Restricted cash on December 31, 2011 and
2010 represent time deposits on account, some of which are used to secure short-term bank loans and note payable. As of December
31, 2011, our restricted cash was as set forth on the table below:

F-13

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 6 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

Purpose

Amount

Used to secure short-term bank loans (also see Note 15)

$

2,356,749

Used to secure note payable (also see Note 16)

4,275,457

Pure time deposits

2,783

Total

6,634,989

(d) Inventories

Inventories are stated at the lower of
cost or net realizable value (market value). The cost of raw materials is determined on the basis of weighted average. The cost
of finished goods is determined on the weighted average basis and comprises direct materials, direct labor and an appropriate proportion
of overhead.

Net realizable value is based on estimated
selling prices less any further costs expected to be incurred for completion and selling expense.

(e) Accounts Receivable

Accounts receivable are recognized andcarried
at net realizable value. An allowance for doubtful accounts will be recorded in the period when a loss is probable based
on an assessment of specific evidence indicating troubled collection, historical experience, accounts aging, ongoing business relation
and other factors. Accounts are written off after exhaustive efforts at collection. If accounts receivable
are to be provided for, or written off, they would be recognized in the consolidated statement of operations within operating expenses.
At December 31, 2011 and 2010, the Company has no allowance for doubtful accounts, as per the management’s judgment based
on their best knowledge.

As of December 31, 2011 and 2010, the longest
credit term used, in connection with certain select customers, was 120 days.

(f) Notes Receivable

Notes receivable represents short term
loans lending to third parties with the maximum term of one year. Interest income will be recognized according to each agreement
between a borrower and the Company on accrual basis. If notes receivable are paid back, or written off, that will be recognized
in the relevant year if the loan default is probable, reasonably assured and the loss can be reasonably estimated. The company
will recognize income if the written-off loan is recovered at a future date. In case of any foreclosure proceedings or legal actions
being taken, the company will provide accrual for the related foreclosure expenses and related litigation expenses.

F-14

(g) Prepayments

Prepayments represent cash paid in advance
to suppliers. As of December 31, 2011, prepayments included cash paid advances to raw material suppliers, mold manufactures, and
prepaid expenses, such as water and electricity fees.

(h) Plant and Equipment

Plant and equipment are carried at cost
less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Leasehold
improvements are amortized over the life of the asset or the term of the lease, whichever is shorter. Estimated useful lives are
as follows:

Buildings

30 years

Machinery

10 years

Motor vehicles

5 years

Office equipment

5 years

Molds

5 years

The cost and related accumulated depreciation
of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income.
The cost of maintenance and repairs is charged to expense as incurred, whereas significant renewals and betterments are capitalized.

(i) Construction in Progress

Construction in progress represents direct
costs of construction or the acquisition cost of buildings or machinery and design fees. Capitalization of these costs ceases and
the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the
assets for their intended use are completed. No depreciation is provided until the assets are completed and ready for their intended
use.

(j) Land Use Rights

According to the laws of China, land in
the PRC is owned by the government and it ownership cannot be sold to an individual or a private company. However, the government
grants the user a “land use right” to use the land. The land use rights granted to the Company are
being amortized using the straight-line method over the lease term of fifty years.

F-15

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 6 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(k) Accounting for the Impairment of Long-Lived
Assets

The Company periodically evaluates the
carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances
warrant such a review, pursuant to the guidelines established in ASC No. 350. The carrying value of a long-lived asset is considered
impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value.
In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived
asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are
reduced for the cost to dispose.

During the reporting period, there was
no impairment loss.

(l) Revenue Recognition

Revenues represent the invoiced value of
goods sold recognized upon the shipment of goods to customers. Revenues are recognized when all of the following criteria are met:

·

Persuasive evidence of an arrangement exists;

·

Delivery has occurred or services have been rendered;

·

The seller’s price to the buyer is fixed or determinable; and

·

Collectability is reasonably assured.

(m) Research and Development

Expenditures relating to the development
of new products and processes, including significant improvement to existing products, are expensed as incurred. Research and development
expenses were $2,304,373 and $1,908,134 for the years ended December 31, 2011 and 2010, respectively.

F-16

(n) Government Grant

Grants received from the PRC Government for
assisting in the Company’s technical research and development efforts are netted against the relevant research and development
costs incurred when the proceeds are received or collectible.

During 2011 and 2010, $298,072 and $351,343
was received from the PRC Government as a reward for the Company’s contribution to the local economy.

(o) Income Taxes

The Company accounts for income tax using
an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability
approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. The accounting for deferred tax calculation
represents the management’s best estimate on the most likely future tax consequences of events that have been recognized
in our financial statements or tax returns and related future anticipation. A valuation allowance is provided for deferred tax
assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that
future realization is uncertain.

(p) Foreign Currency Translation

The accompanying consolidated financial statements
are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated
financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions
occurr.

Assets and liabilities are translated at the
exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year, which
obtained from website: http://www.oanda.com

December 31, 2011

December 31, 2010

Year end RMB : USD exchange rate

6.3647

6.6118

Average yearly RMB : USD exchange rate

6.4735

6.7788

F-17

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

(q) Comprehensive Income

Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all
items that are required to be recognized under current accounting standards as components of comprehensive income are required
to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive
income includes net income and the foreign currency translation changes for the year in which such are obtained.

(r) Segments

The Company operates in one business segment,
development, manufacturing, and commercialization of Super-mini-cars, all-terrain vehicles, go-karts, and special automobile related
products.

(s) Stock Option Cost

The Company’s stock option cost is
recorded in accordance with ASC 718 and ASC 505.

The fair value of stock options is estimated
using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based on the historical volatility
of the Company’s stock. The expected life assumption is primarily based on the expiration date of the option. The risk-free
interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Stock option expense recognized is based
on awards expected to vest, and there were no estimated forfeitures. ASC standards require forfeitures to be estimated at the time
of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

The stock option based expense for the
year ended December 31, 2011 is $252,632. Also see Note 18.

(t) Warrant Cost

The Company’s warrant costs are recorded
in liabilities and equities, respectively, in accordance with ASC 480, ASC 505 and ASC 815.

F-18

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 6 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

The fair value of warrants, which is classified
as a liability, is estimated using the Black-Scholes-Merton model. The Company’s expected volatility assumption is based
on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration date
of the warrant. The risk-free interest rate for the expected term of the warrant is based on the U.S. Treasury yield curve in effect
at the time of measurement. The warrants, which are freestanding derivatives and are classified as liabilities on the balance sheet,
will be measured at fair value on each reporting date, with decreases in fair value recognized in earnings and increases in fair
values were recognized in expenses.

The Company determined that the fair value
of equity based warrants, which are not considered derivatives under ASC 815, is estimated using the Black-Scholes-Merton model.
The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected
life assumption is primarily based on the expiration date of the warrant. The risk-free interest rate for the expected term of
the option is based on the U.S. Treasury yield curve in effect at the time of grant.

(u) Fair Value of Conversion features

In accordance with ASC 815, the conversion
feature of the Convertible Notes is separated from the debt instrument and accounted for separately as a derivative instrument.
On the date the Convertible Notes are issued, the conversion feature was recorded as a liability at its fair value, and future
decreases in fair value recognized in earnings while increases in fair values recognized in expenses.

The Company used the Black-Scholes-Merton
option-pricing model to obtain the fair value of the conversion feature. The Company’s expected volatility assumption is
based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on the expiration
date of the conversion features. The risk-free interest rate for the expected term of the conversion features is based on the U.S.
Treasury yield curve in effect at the time of measurement.

F-19

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 7 – NEW ACCOUNTING PRONOUNCEMENTS

In April 2011, the Financial Accounting
Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) ASU 2011-03, Consideration of Effective
Control on Repurchase Agreements, which deals with the accounting for repurchase agreements and other agreements that both entitle
and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 changes the rules for determining
when these transactions should be accounted for as financings, as opposed to sales. The guidance in ASU 2011-03 is effective for
the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions
or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption
of ASU 2011-03 is not expected to have a material impact on the Company’s financial condition or results of operation.

In May 2011, the FASB issued ASU 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP
and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies some existing concepts, eliminates
wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between
U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and
disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that
are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for the Company beginning after December
15, 2011. The Company does not expect the adoption of ASU 2011-04 to have a material effect on its operating results or financial
position.

In June 2011, FASB issued ASU 2011-05,
Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of
net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or
in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income
as part of the statement of equity. ASU 2011-05 will be effective for the Company beginning after December 15, 2011. The Company
does not expect the adoption of ASU 2011-05 to have a material effect on its operating results or financial position. The Company
is currently evaluating ASU 2011-05’s potential impact on its presentation of comprehensive income.

In September 2011, the FASB has issued
Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment.
ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits
an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of
a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill
impairment test described in Topic 350,

F-20

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 7 – NEW ACCOUNTING PRONOUNCEMENTS
(CONTINUED)

Intangibles-Goodwill and Other.
The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including
for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial
statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been
made available for issuance.

In December 2011, the FASB has issued ASU
No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11 is intended
to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of
netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff
associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments
require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are
either (i) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (ii) subject to an enforceable master netting
arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section
815-10-45. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and
interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively
for all comparative periods presented. The Company is evaluating whether the adoption of ASU 2011-04 will have a material effect
on its operating results or financial position; however, the Company does not expect the adoption of ASU No. 2011-11 to have a
material effect on its operating results or financial position.

In December 2011, the FASB has issued ASU
No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications
of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No. 2011-11 is intended
to supersede certain pending paragraphs in Accounting Standards Update No. 2011-05,Comprehensive Income (Topic 220): Presentation
of Comprehensive Income, to effectively defer only those changes in Update 2011-05 that relate to the presentation of reclassification
adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to redeliberate
the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial
statements for public, private, and non-profit entities. All other requirements in ASU No. 2011-05 are not affected by ASU No.
2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate
but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within
those years, beginning after December 15, 2011. The Company does not expect the adoption of ASU No. 2011-11 to have a material
effect on its operating results or financial position.

F-21

Other accounting standards that have been
issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected
to have a material impact on the Company’s financial statements upon adoption

NOTE 8 – CONCENTRATIONS

(a) Customers

The Company’s major customers for the
years ended December 31, 2011 and 2010 accounted for the following percentages of total sales and accounts receivable as follows:

Sales

Accounts Receivable

Major Customers

Twelve Months Ended December, 31, 2011

Twelve Months Ended December, 31, 2010

December 31, 2011

December 31, 2010

Company A

29

%

46

%

-

61

%

Company B

25

%

15

%

56

%

14

%

Company C

20

%

35

%

19

%

20

%

Company D

10

%

-

10

%

-

Company E

8

%

-

2

%

-

(b) Suppliers

The Company’s major suppliers for the
years ended December 31, 2011 and 2010 accounted for the following percentage of total purchases and accounts payable as follows:

Purchases

Accounts Payable

Major Suppliers

Twelve Months Ended December, 31, 2011

Twelve Months Ended December, 31, 2010

December 31, 2011

December 31, 2010

Company F

61

%

84

%

1

%

26

%

Company G

3

%

-

4

%

1

%

Company H

2

%

1

%

4

%

1

%

Company I

2

%

2

%

2

%

4

%

Company J

2

%

1

%

-

3

%

F-22

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 9 – INCOME PER SHARE

The Company calculates earnings per share
in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic
earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. Diluted earnings
per share represents basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options,
warrants and convertible note (using the if-converted method). For the fiscal year ended December 31, 2011, there are 1,297,023
potentially dilutive common shares.

The following table sets forth the computation
of basic and diluted net income per common share:

Twelve months Ended December 31,

2011

2010

Net income (loss)

$

9,114,770

$

(951,439

)

Weighted – average shares of common stock outstanding

Basic

27,438,725

22,173,550

Dilutive shares

1,297,023

-

Diluted

28,735,748

22,173,550

Basic (loss) earnings per share

$

0.33

$

(0.04

)

Diluted (loss) earnings per share

$

0.32

$

(0.04

)

Also see Note 18.

NOTE 10 - INVENTORIES

Inventories are summarized as follows:

December 31, 2011

December 31, 2010

Raw material

$

1,737,211

$

1,754,216

Work-in-progress

3,898,950

3,668,104

Finished goods

1,110,793

464,186

Total inventories

6,746,954

5,886,506

Less: reserve for slowing moving inventories

(72,487

)

-

Inventories, net

$

6,674,467

$

5,886,506

F-23

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 11 - NOTES RECEIVABLE

Notes receivable are summarized as follows:

December 31, 2011

December 31, 2010

Notes receivable from unrelated companies:

Due March 3, 2011, interest at 6.0% per annum 1

-

1,205,026

Due March 5, 2011, interest at 6.0% per annum 2

-

423,168

Due April 13, 2011, interest at 9.6% per annum 3

-

1,512,448

Due April 29, 2011, interest at 5.31% per annum 4

-

756,224

Due September 30, 2011, interest at 9.6% per annum 5

-

20,969,123

Due April 7, 2012, interest at 9.6% per annum 6

4,713,498

-

Due September 30, 2012, interest at 9.6% per annum 7

33,165,745

-

Notes receivable from unrelated companies

37,879,243

24,865,989

Bank acceptance notes:

Bank acceptance notes

-

-

Notes receivable

$

37,879,243

$

24,865,989

Notes receivable are unsecured.

Details of Notes receivable from unrelated
parties as of December 31, 2010

Amount ($)

Counter party

Relationship

Purpose of Loan

Manner of settlement

1

1,205,026

Hangzhou YuanHai Property Co., Ltd

No relationship beyond loan

Receive interest income

Repaid in cash

2

423,168

Hangzhou YuanHai Property Co., Ltd

No relationship beyond loan

Receive interest income

Repaid in cash

3

1,512,448

Yongkang BoTao Trading Co., Ltd

No relationship beyond loan

Receive interest income

Repaid in cash

4

756,224

JiangXi De’er Chemical Co., Ltd

Relationship details(*)

Receive interest income

Repaid in cash

5

20,969,123

Yongkang HuiFeng Guarantee Co., Ltd

No relationship beyond loan

Receive interest income

Repaid part in cash and renewed on the due date

F-24

(*) JiangXi De’er Chemical Co., Ltd.
is 85% owned by Kandi Investment Group Co. (“KIGC”). KIGC is the guarantor of the Company’s bank loan of $4,234,853
and was also a lender of the note payable of $134,305 as of December 31, 2010. Also see note 15 and note 16 of Form 10-K, as amended,
for fiscal year ended December 31, 2010. KIGC was a major shareholder of Kandi Vehicles but it
transferred all its equity in Kandi Vehicles to Continental Development Limited in November 2006. Since then, KIGC has been unrelated
to the Company or its affiliates.

Details of Notes receivable from unrelated
parties as of December 31, 2011

As of December 31, 2011 and 2010, the net
book value of land use rights pledged as collateral for the Company’s bank loans was $4,057,640 and $3,998,555 respectively.
Also see Note 15.

As of December 31, 2011 and 2010, the net
book value of land use rights pledged as collateral for bank loans borrowed by Zhejiang Mengdeli Electric Co., Ltd (“ZMEC”),
an unrelated party of the Company was $6,935,129 and $6,834,897. Also see Notes 20.

It is a common business practice among
companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given. It is
considered a “favor for favor” business practice and is commonly required by the lending banks as in these cases. ZMEC
has provided a guarantee for certain of the Company’s bank loans. As of December 31, 2011, ZMEC had guaranteed bank loan
of the Company for a total of $12,569,328. In exchange, the Company provided guarantees for bank loans or notes being borrowed
by ZMEC and pledged the Company’s assets for ZMEC’s bank loans. Also see Note 15 and Note 20.

The amortization expense for the years
ended December 31, 2011 and 2010 was $256,884 and $245,316, respectively.

Amortization expense for the next five years
and thereafter is as follows:

2012

$

256,884

2013

256,884

2014

256,884

2015

256,884

2016

256,884

Thereafter

9,708,349

Total

$

10,992,769

F-26

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 13 – PLANT AND EQUIPMENT

Plant and equipment consist of the following:

December 31, 2011

December 31, 2010

At cost:

Buildings

$

13,698,216

$

13,073,777

Machinery and equipment

10,138,064

9,733,241

Office equipment

199,021

153,441

Motor vehicles

246,243

188,277

Moulds

15,286,217

14,307,730

39,567,761

37,456,466

Less : Accumulated depreciation

Buildings

$

(1,949,251

)

$

(1,437,172

)

Machinery and equipment

(8,032,798

)

(6,755,599

)

Office equipment

(131,813

)

(108,034

)

Motor vehicles

(175,578

)

(129,113

)

Moulds

(8,296,428

)

(5,114,921

)

(18,585,868

)

(13,544,840

)

Plant and equipment, net

$

20,981,893

$

23,911,626

As of December 31, 2011 and 2010, the net
book value of plant and equipment pledged as collateral for the Company’s bank loans was $7,124,618 and $7,002,375, respectively.

As of December 31, 2011 and 2010, the net
book value of plant and equipment pledged as collateral for bank loans borrowed by Zhejiang Mengdeli Electric Co., Ltd. (“ZMEC”),
an unrelated party of the Company was $4,624,347 and $4,634,487. Also see Note 20.

Also see Note 15. Depreciation expense
for the years ended December 31, 2011 and 2010 was $4,439,306 and $3,613,046, respectively.

F-27

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 14 - DUE TO/FROM RELATED PARTIES

Due to Related Party

2011

2010

ELIL(a)

$

841,251

$

841,251

Total due to a related party

$

841,251

$

841,251

(a)

In connection with the share exchange transaction, which took place on June 29, 2007, between Stone Mountain Resources, Inc., a Delaware corporation (“Stone Mountain”), Continental Development Ltd, a Hong Kong corporation, and ExcelVantage Group Limited, a British Virgin Islands company, certain of the expenses incurred in the United States in connection with the transaction were paid on behalf of Stone Mountain by Ever Lotts Investment Limited (“ELIL”), an entity set up for this purpose by certain shareholders of Stone Mountain. As of December 31, 2011 and 2010, ELIL had paid $841,251 and $841,251, respectively, for expenses in connection with the share exchange transaction.

Monthly interest only payments at 6.56% per annum, due October 15, 2012, guaranteed by Mr. Hu Xiaoming, and Ms. Ling Yueping, and secured by Company’s assets. Also see Note 12 and Note 13.

1,571,166

-

Monthly interest only payments at 6.89% per annum, due December 5, 2012, secured by Company’s asset. Also see Note 12 and Note 13.

785,583

F-29

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 15 - SHORT TERM BANK LOANS (CONTINUED)

December 31, 2011

December 31, 2010

Loans from Huaxia Bank

Monthly interest only payments at 5.73% per annum, due September 20, 2011, secured by the assets of the Company, guaranteed by Mr.Hu Xiaoming, Ms.Ling Yueping, Zhejiang Kangli Metal Manufacturing Company and Kandi Investment Group Co.

-

4,234,853

Monthly interest only payments at 7.22% per annum, due September 23, 2012, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Zhejiang Kangli Metal Manufacturing Company and Kandi Investment Group Co. Also see Note 12 and Note 13.

4,399,265

-

Loans from China Ever-bright Bank

Monthly interest only payments at 5.84% per annum, due April 7, 2011, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Nanlong Group Co., Ltd. and Zhejiang Mengdeli Electric Co., Ltd.

-

4,537,342

Monthly interest only payments at 5.84% per annum, due October 11, 2011, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Nanlong Group Co., Ltd. and Zhejiang Mengdeli Electric Co., Ltd.

-

4,537,342

Monthly interest only payments at 5.10% per annum, due November 1, 2011, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Nanlong Group Co., Ltd. and Zhejiang Mengdeli Electric Co., Ltd.

-

3,024,895

Interest only payment at 6.71% per annum, due February 15, 2012, (subsequently repaid on due date).

3,142,332

-

Monthly interest only payments at 6.10% per annum, due May 15, 2012, secured by the Company’s time deposit of $2,356,749. Also see Note 6.

2,121,073

-

Monthly interest only payments at 7.74% per annum, due August 27, 2012, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Nanlong Group Co., Ltd. and Zhejiang Mengdeli Electric Co., Ltd. Also see Note 12 and Note 13.

4,713,498

-

F-30

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 15 - SHORT TERM BANK LOANS (CONTINUED)

December 31, 2011

December 31, 2010

Monthly interest only payments at 7.74% per annum, due August 27, 2012, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming, Nanlong Group Co., Ltd. and Zhejiang Mengdeli Electric Co., Ltd. Also see Note 12 and Note 13.

4,713,498

-

Loans from Shanghai Pudong Development Bank

Monthly interest only payments at 6.10% per annum, due December 28, 2011, secured by the property of Mr. Hu Xiaoming and Ms. Ling Yueping, guaranteed by Nanlong Group Co., Ltd. and Mr. Hu Xiaoming

-

3,024,895

Monthly interest only payments at 6.71% per annum, due June 26, 2012, secured by the property of Ms. Ling Yueping, guaranteed by Nanlong Group Co., Ltd. and Mr. Hu Xiaoming

Short term bank loan interest expense for
the years ended December 31, 2011 and 2010 was $2,030,228, and $1,510,957, respectively.

F-31

As of December 31, 2011, the aggregated amount
of short-term loans that are guaranteed by various unrelated third parties was $30,323,504. The breakdown is as follows:

- $12,569,328
is guaranteed by Zhejiang Mengdeli Electric Co Ltd (“ZMEC”), whose bank note of $1,256,933 is guaranteed by the Company,
and ZMEC’s bank loans of $7,007,400 are secured by a pledge, or by the Company’s plant and equipment and the land use
right for which net book values are $4,624,347, and $6,935,129, respectively. Also see Note 20.

- $12,255,095
is guaranteed by Zhejiang Kangli Metal Manufacturing Company, whose bank loans of $4,713,498 is guaranteed by the Company.
Also see Note 20. $3,142,332 of the $12,255,095 is guaranteed by Lv Qingjiang, a major shareholder of Zhejiang Kangli Metal Manufacturing
Company. This amount

- $3,142,332
is guaranteed by Zhejiang Shuguang industrial Co., Ltd., whose bank loans of $7,855,830 are guaranteed by the Company. Also see
Note 20.

- $4,713,498
is guaranteed by Zhejiang Taiping Shengshi Industrial Co., Ltd. whose bank loans of $3,142,332 is also guaranteed by the Company.
Also see Note 20.

- $5,184,848
is guaranteed by Kandi Investment Group Co.

- $12,569,328
is guaranteed by Nanlong Group Co., Ltd..

It is a common business practice among
companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given. It is
considered a “favor for favor” business practice and is commonly required by the lending banks as in these cases.

F-32

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 16 – NOTES PAYABLE

By issuing bank note payables rather than
paying cash to suppliers, the Company can defer the payments until the date the bank note payable is due. Simultaneously, the Company
needs to deposit restricted cash in banks to back up the bank note payable, while the restricted cash deposited in banks will generate
interest income

Notes payable are summarized as follows:

December 31, 2011

December 31, 2010

Bank acceptance notes:

Due January 13, 2011

$

-

$

1,512,447

Due March 2, 2011

-

1,209,958

Due March 13, 2011

-

1,512,447

Due March 16, 2011

-

1,209,958

Due April 18, 2011

-

1,134,336

Due April 18, 2011

-

930,155

Due April 18, 2011

-

960,404

Due April 20, 2011

-

1,361,203

Due April 26, 2011

-

2,268,671

Due May 5, 2011

-

756,224

Due May 10, 2011

-

3,024,895

Due May 16, 2011

-

3,024,895

Due January 19,2012 (subsequently repaid on its due date)

149,262

-

Due March 26, 2012 (subsequently repaid on its due date)

14,140

-

Due March 26, 2012(subsequently repaid on its due date)

15,712

-

Due March 26, 2012(subsequently repaid on its due date)

37,708

-

Due March 26, 2012(subsequently repaid on its due date)

15,712

-

Due March 26, 2012(subsequently repaid on its due date)

17,283

-

Due March 26, 2012(subsequently repaid on its due date)

15,712

-

Due March 26, 2012(subsequently repaid on its due date)

14,140

-

Due March 26, 2012(subsequently repaid on its due date)

7,856

-

Due March 26, 2012(subsequently repaid on its due date)

6,285

-

Due March 26, 2012(subsequently repaid on its due date)

15,712

-

Due March 26, 2012(subsequently repaid on its due date)

15,712

-

Due March 26, 2012(subsequently repaid on its due date)

7,856

-

Due March 26, 2012(subsequently repaid on its due date)

31,423

-

Due March 26, 2012(subsequently repaid on its due date)

9,741

-

F-33

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 16 – NOTES PAYABLE (CONTINUTED)

December 31, 2011

December 31, 2010

Due March 26, 2012(subsequently repaid on its due date)

9,427

-

Due March 26, 2012(subsequently repaid on its due date)

10,998

-

Due March 26, 2012(subsequently repaid on its due date)

31,423

-

Due March 26, 2012(subsequently repaid on its due date)

51,848

-

Due March 26, 2012(subsequently repaid on its due date)

47,135

-

Due March 26, 2012(subsequently repaid on its due date)

15,712

-

Due March 26, 2012(subsequently repaid on its due date)

4,713

-

Due March 26, 2012(subsequently repaid on its due date)

3,142

-

Due March 26, 2012(subsequently repaid on its due date)

3,142

-

Due March 26, 2012(subsequently repaid on its due date)

12,569

-

Due March 26, 2012(subsequently repaid on its due date)

15,712

-

Due March 26, 2012(subsequently repaid on its due date)

3,142

-

Due March 26, 2012(subsequently repaid on its due date)

3,142,332

-

Due May 10, 2012

78,558

-

Due May 10, 2012

157,117

-

Due May 10, 2012

188,540

-

Due May 10, 2012

94,270

-

Due May 10, 2012

31,423

-

Due June 19, 2012

235,675

-

Due June 19, 2012

1,335,491

-

Subtotal

$

5,846,623

$

18,905,593

Notes payable to unrelated companies:

Due April 24, 2011 (Interest rate 6.0% per annum)

$

-

$

134,305

Due January 20, 2012 (Interest rate 6.0% per annum)

1,000

1,000

Subtotal

$

1,000

$

135,305

Total

$

5,847,623

$

19,040,898

All the bank acceptance notes do not bear
interest, but are subject to bank charges of 0.05% of the principal as commission on each transaction. Bank charges for notes payable
were $17,781 and $14,383 in 2011 and 2010, respectively.

Restricted cash of $4,275,457 is held as
collateral for the following notes payable at December 31, 2011:

F-34

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 16 – NOTES PAYABLE (CONTINUED)

Due January 19,2012 (subsequently repaid on its due date)

149,262

Due March 26, 2012 (subsequently repaid on its due date)

14,140

Due March 26, 2012(subsequently repaid on its due date)

15,712

Due March 26, 2012(subsequently repaid on its due date)

37,708

Due March 26, 2012(subsequently repaid on its due date)

15,712

Due March 26, 2012(subsequently repaid on its due date)

17,283

Due March 26, 2012(subsequently repaid on its due date)

15,712

Due March 26, 2012(subsequently repaid on its due date)

14,140

Due March 26, 2012(subsequently repaid on its due date)

7,856

Due March 26, 2012(subsequently repaid on its due date)

6,285

Due March 26, 2012(subsequently repaid on its due date)

15,712

Due March 26, 2012(subsequently repaid on its due date)

15,712

Due March 26, 2012(subsequently repaid on its due date)

7,856

Due March 26, 2012(subsequently repaid on its due date)

31,423

Due March 26, 2012(subsequently repaid on its due date)

9,741

Due March 26, 2012(subsequently repaid on its due date)

9,427

Due March 26, 2012(subsequently repaid on its due date)

10,998

Due March 26, 2012(subsequently repaid on its due date)

31,423

Due March 26, 2012(subsequently repaid on its due date)

51,848

Due March 26, 2012(subsequently repaid on its due date)

47,135

Due March 26, 2012(subsequently repaid on its due date)

15,712

Due March 26, 2012(subsequently repaid on its due date)

4,713

Due March 26, 2012(subsequently repaid on its due date)

3,142

Due March 26, 2012(subsequently repaid on its due date)

3,142

Due March 26, 2012(subsequently repaid on its due date)

12,569

Due March 26, 2012(subsequently repaid on its due date)

15,712

Due March 26, 2012(subsequently repaid on its due date)

3,142

Due March 26, 2012(subsequently repaid on its due date)

3,142,332

Due May 10, 2012

78,558

Due May 10, 2012

157,117

Due May 10, 2012

188,540

Due May 10, 2012

94,270

Due May 10, 2012

31,423

Due June 19, 2012

235,675

Due June 19, 2012

1,335,491

Total

$

5,846,623

F-35

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 17 – TAXES

(a) Corporation Income Tax

On March 16, 2007, the National People’s
Congress of the PRC adopted a new corporate income tax law (the “new CIT law”) in its fifth plenary session. The new
corporate income tax law unifies the application scope, tax rate, tax deduction and preferential policy for both domestic and foreign-invested
enterprises. The new corporate income tax law took effect on January 1, 2008. In accordance with the relevant tax laws and
regulations of the PRC, the applicable corporate income tax (“CIT”) rate of Kandi is 25%. However, a foreign-invested
company which registered with the PRC government before March 16, 2007 is still permitted to apply the former corporate income
tax rules. Thus, our company was exempt from corporate income tax for 2007 and 2008 and is also entitled to a 50% tax reduction
for 2009, 2010 and 2011, for which the tax rate is 12.5%.

Kandi New Energy is a subsidiary of the
Company and its applicable corporate income tax rate is 25%. However, because Kandi New Energy’s profit was below a special
standard amount in 2010, which rendered it to enjoy an initial tax benefit of 50% reduction in taxable income and tax at 20% reduced
rate in 2011, with effective tax rate at 10%. The special reduced CIT tax rate benefit only lasts for one year. In 2012, the tax
rate will go back to normal at 25%.

According to the PRC CIT reporting system,
the CIT sales cut-off base is concurrent with the value added tax (“VAT”) which will be reported to the State Administration
of Taxation (“SAT”) on a quarterly basis. Since the VAT and CIT are accounted for on a VAT tax basis that recorded
all sales on a “State provided official invoices” reporting system, the Company is reporting the CIT according to the
SAT prescribed tax reporting rules. Under the VAT tax reporting system, sales cut-off did not take the accrual basis but rather
on a VAT taxable reporting basis. Therefore, when the company adopted US GAAP on accrual basis, the sales cut-off CIT timing difference
which is derived from the VAT reporting system and will create a temporary sales cut-off timing difference; this difference is
reflected in the deferred tax assets or liabilities calculations on the income tax estimate reported in the Form 10-K.

Effective January 1, 2007, the Company
adopted ASC 740, Income Taxes. The interpretation addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial statements.

F-36

Under ASC 740, the Company may recognize
the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements
from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on
income taxes, accounting in interim periods and requires increased disclosures. As of December 31, 2011, the Company does not have
a liability for unrecognized tax benefits. The Company files income tax returns to the U.S. Internal Revenue Services (“IRS”)
and states where the Company has operation. The Company is subject to U.S. federal or state income tax examinations by IRS and
relevant state tax authorities for years after 2006. During the periods open to examination, the Company has net operating loss
carry forwards (“NOLs”) for U.S. federal and state tax purposes that have attributes from closed periods. Since these
NOLs may be utilized in future periods, they remain subject to examination. The Company also files certain tax returns in China.
As of December 31, 2011 the Company was not aware of any pending income tax examinations by U.S. and China tax authorities. The
Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31,
2011, the Company has no accrued interest or penalties related to uncertain tax positions. The Company has not recorded a provision
for U.S federal income tax for the year ended December 31, 2011 due to the net operating loss carry forward in the United States.

Income tax expense for the years ended
December 31, 2011 and 2010 is summarized as follows:

For the Year Ended December 31,

2011

2010

Current:

Provision for CIT

$

551,060

$

405,713

Provision for Federal Income Tax

-

-

Deferred:

Provision for CIT

-

-

Income tax expense

$

551,060

$

405,713

The Company’s income tax expense differs
from the “expected” tax expense for the year ended December 31, 2011 and 2010 (computed by applying the U.S. Federal
Income Tax rate of 34% and PRC Corporation Inocme Tax rate of 25%, respectively to income before income taxes) as follows:

For the Year Ended December 31,

2011

2010

Computed “expected” expense

$

(338,369

)

$

(2,753,334

)

Favorable tax rate

(659,905

)

(405,713

)

Permanent differences

197,821

40,615

Valuation Allowance

1,351,513

3,524,145

Income tax expense

$

551,060

$

405,713

The tax effects of temporary differences that
give rise to the Company’s net deferred tax assets and liabilities as of December 31, 2011 and 2010 are summarized as follows:

F-37

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 17 – TAXES (CONTINUED)

December 31, 2011

December 31, 2010

Current portion:

Deferred tax assets:

Expense

$

(11,741

)

$

(10,042

)

Subtotal

(11,741

)

(10,042

)

Deferred tax liabilities:

Sales cut-off difference derived from Value Added Tax reporting system to calculate PRC Corporation Income Tax in accordance with the PRC State Administration of Taxation

(44,621

)

(24,041

)

Other

-

-

Subtotal

(44,621

)

(24,041

)

Total deferred tax liabilities – current portion

(56,362

)

(34,083

)

Non-current portion:

Deferred tax assets:

Depreciation

226,622

476,847

Loss carried forward

1,351,513

3,524,145

Valuation allowance

(1,351,513

)

(3,524,145

)

Subtotal

226,622

476,847

Deferred tax liabilities:

Accumulated other comprehensive gain

(136,624

)

(220,899

)

Subtotal

(136,624

)

(220,899

)

Total deferred tax assets – non-current portion

89,998

255,948

Net deferred tax assets

$

33,636

$

221,865

F-38

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 17 – TAXES (CONTINUED)

(b) Tax Holiday Effect

For the years ended December 31, 2011 and
2010 the PRC corporate income tax rate was 25%. Certain subsidiaries of the Company are entitled to tax exemptions (tax holidays)
for the years ended December 31, 2011 and 2010.

The combined effects of the income tax expense
exemptions and reductions available to the Company for the years ended December 31, 2011 and 2010 are as follows:

For the Year Ended December 31

2011

2010

Tax holiday effect

$

659,905

$

405,713

Basic net income per share effect

$

0.02

$

0.02

F-39

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 18 - STOCK OPTIONS, WARRANTS AND CONVERTIBLE
NOTES

(a) Stock Options

On February 11, 2009, the Compensation
Committee of the Board of Directors of the Company approved the grant of stock options for 2,600,000 shares of common stock to
ten of the Company’s employees and directors. The stock options vest ratably over three years and expire in ten years from
the grant date. The Company valued the stock options at $2,062,964 and amortizes the stock compensation expense using the straight-line
method over the service period from February 11, 2009 through February 11, 2012. The value of the options was estimated using the
Black Scholes Model with an expected volatility of 164%, expected life of 10 years, risk-free interest rate of 2.76% and expected
dividend yield of 0.00%. On June 30, 2011, one of the Company’s directors resigned, and his 6,668 unexercised options were
forfeited. As of December 31, 2011, options for 906,695 shares have been exercised.

On October 6, 2009, the Company executed
an agreement (“Cooperation Agreement”) with Wang Rui and Li Qiwen, third-party consultants, whereby Mr. Wang and Mr.
Li are to provide business development services in China to the Company in exchange for options to purchase 350,000 shares
of the Company’s common stock at an exercise price of $1.50 per share. Per the agreement, 250,000 of these
options will vest and become exercisable on March 6, 2010, and 100,000 will vest and become exercisable on June 6, 2010. The
options will expire after ten years.

The following is a summary of the stock option
activities of the Company:

Activity

Weighted Average Exercise Price

Outstanding as of January 1, 2011

1,833,304

$

0.84

Granted

-

-

Exercised

39,999

0.80

Cancelled

6,668

0.80

Outstanding as of December 31, 2011

1,786,637

0.84

F-40

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 18 - STOCK OPTIONS, WARRANTS AND CONVERTIBLE
NOTES (CONTINUED)

The following table summarizes information
about stock options outstanding as of December 31, 2011:

Options Outstanding

Options Exercisable

Number of shares

Exercise Price

Remaining Contractual life (in years)

Number of shares

Exercise Price

1,686,637

$

0.80

7.25

1,686,637

$

0.80

100,000

1.50

7.75

100,000

1.50

The fair value per share of the 2,600,000
options issued to the employees and directors is $0.7934 per share. The fair value per share of the unexercised 100,000 options
issued to Wang Rui and Li Qiwen, which became exercisable on June 6, 2010, is $3.44.

(b) Warrants and Convertible Notes

On September 21, 2009, the Company executed
an agreement (“Consulting Agreement”) with a third-party consultant, whereby the consultant is to provide
management consulting and advisory services for a period of 12 months, beginning on September 22, 2009, and ending on September
22, 2010. As compensation for the services provided, the Company agreed to issue 200,000 warrants to purchase the Company’s
common stock, with 100,000 of these warrants issued at an exercise price of $2.00 per share and 100,000 of these warrants issued
at an exercise price of $2.50 per share. All of the warrants have a five year contractual term and were granted on October
22, 2009. The warrants vested in full and became exercisable on January 21, 2010, upon the closing of an initial round
of financing. The fair value per share of the 100,000 warrants issued under the Consulting Agreement with an exercise price of
$2.00 is $4.56, and the fair value per share of the 100,000 warrants issued under the Consulting Agreement with an exercise price
of $2.50 is $4.48. As of December 31, 2011, the consultant had cashless exercised the 100,000 warrants with the exercise price
of $2.5 per share.

F-41

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 18 - STOCK OPTIONS, WARRANTS AND CONVERTIBLE
NOTES (CONTINUED)

Under a Securities Purchase Agreement,
dated as of January 21, 2010, by and among the Company and certain investors thereto, the Company issued a total of $10 million
of senior secured convertible notes (the “Convertible Notes”) and warrants exercisable for an aggregate of 800,000
shares of the Company’s Common Stock (the “Investor Warrants”), for gross proceeds of $10 million. The
Convertible Notes, which accrue interest at a rate of 6% per annum, will mature in two years following the closing date of the
offering and are initially convertible, at the option of the holders, into shares of Common Stock at $6.25 per share. As
of closing date, January 21, 2010, the Convertible Notes were convertible into 1,600,000 shares of Common Stock at the price of
$6.25 per share. The Investor Warrants, which are exercisable for a period of three years following the closing date,
were initially exercisable upon entering into the Securities Purchase Agreement (dated January 21, 2010) at an exercise price of
$6.5625 per share. Included in the associated issuance costs is the fair value of 80,000 warrants issued to a placement
agent. These warrants have the same terms and conditions as the Investor Warrants issued to the investors.

Pursuant to the terms of the Convertible
Notes and the Investor Warrants, on May 18, 2010, the conversion price of the Convertible Notes was adjusted to $3.5924 per share
and the exercise price of the Investor Warrants and warrants issued to the placement agent was adjusted to $4.3907 per share. On
August 19, 2010, the conversion price of the Convertible Notes was adjusted to $3.1146 per share and the exercise price of the
Investor Warrants and warrants issued to the placement agent was adjusted to $3.8067 per share. As a result, the number of Investor
Warrants and warrants issued to the placement agent was adjusted to 1,379,148 and 137,915 respectively. As of December 31, 2011,
the investors had converted $9,999,000 of the principal amount and $159,507 accrued interest of the Convertible Notes into an aggregate
of 3,120,795 shares of Common Stock.

As of December 31, 2011, the fair value
of the Investor Warrants and the warrants issued to the placement agent is $1.25 per share, and the fair value of conversion features
is $0.66 per share.

On December 21, 2010, the Company agreed
to sell to certain institutional investors up to 3,027,272 shares of the Company’s common stock and warrants to purchase
up to 1,210,912 shares of the Company’s common stock in fixed combination, with each combination consisting of one share
of common stock and a warrant to purchase 0.40 shares of common stock in a registered direct public offering (“Second round
warrants”). The warrants became exercisable immediately following the closing date of the offering and remain exercisable
for three years thereafter at an exercise price of $6.30 per share. As of December 31, 2011, the fair value of Second round warrants
is $1.67 per share.

F-42

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 19 – STOCK AWARD

According to that certain Consulting Agreement
dated as of September 21, 2009, the Company agreed to issue the consultant 100,000 shares of Company’s Common Stock upon
the achievement of certain conditions. Pursuant to the terms of the Consulting Agreement, the Company issued an aggregate of 100,000
restricted shares of Common Stock to the consultant and certain of its employees on April 14, 2010.

According to that certain consulting agreement
dated as of March 1, 2010, between the Company and DGI Investor Relations, Inc., the Company agreed to compensate the consultant
in payments of 2,000 shares of Company’s Common Stock per quarter for the term of the agreement in exchange for the consultant
providing investor relations services. Pursuant to the terms of the agreement, as of December 31, 2011 the Company has issued 11,340
shares of Common Stock for services rendered from January 1, 2010 to the end of the agreement – May 31, 2011.

According to the employment agreement between
the Company and Cathy Cao, Executive VP of Finance, as part of her compensation package, the Company agreed to compensate Cathy
Cao’s service in payments of 2,500 shares of Common Stock per quarter until September 15, 2011.

In connection with his appointment to the
Board of Directors, and as compensation for serving, the Board of Directors has authorized the Company to provide Mr. Henry Yu
with 5,000 shares of Company’s restricted common stock every six months, par value $0.001 from July 2011.

As compensation for his services, the Board
of Directors has authorized the Company to provide Mr. Jerry Lewin with 5,000 shares of Company’s restricted common stock
every six months, par value $0.001 from August 2011.

The fair value of awarded stock is determined
by the closing price of our common stock on the date of stock award, or by estimating the closing price of our common stock on
the reporting date if stock has not yet been awarded.

F-43

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 20 - COMMITMENTS AND CONTINGENCIES

(a)

Guarantees and Pledged collateral for third party bank loans

As of December 31, 2011, the Company provided
guarantees for the following third parties:

(1)

Guarantees for bank loans

Guarantee provided to

Amount

Zhejiang Kangli Metal Manufacturing Company

$

4,713,498

Zhejiang Shuguang industrial Co., Ltd.

7,855,830

Zhejiang Yiran Auto Sales Company

1,571,166

Zhejiang Taiping Shengshi Industrial Co., Ltd.

3,142,332

Zhejiang Taiping Trade Co., Ltd

3,613,682

Yongkang Angtai Trade Co., Ltd.

785,583

Total

$

21,682,091

On December 4, 2011, the Company entered
into a guarantee contract to serve as the guarantor for the bank loan borrowed from Shanghai Bank Hangzhou branch in the amount
of $4,713,498 by Zhejiang Kangli Metal Manufacturing Company. (“ZKMMC”) for the period from December 4, 2011 to December
4, 2012. ZKMMC is not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZKMMC
under the loan contract if ZKMMC fails to perform its obligations as set forth in the loan contract.

On October 9, 2011 and December 8, 2011,
the Company entered into two guarantee contracts to serve as the guarantor for the bank loans borrowed from Shenzhen Development
Bank Hangzhou branch and Huaxia Bank Hangzhou branch in the amount of $4,713,498 and $3,142,332 by Zhejiang Shuguang industrial
Co., Ltd. (“ZHICL”) for the period from October 9, 2011 to October 9, 2012 and from December 8, 2011 to December 8,
2012 respectively. ZHICL is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations
of ZHICL under the loan contracts if ZHICL fails to perform its obligations as set forth in the loan contracts.

On April 25, 2011, the Company entered
into a guarantee contract to serve as the guarantor for the bank loans borrowed from Shanghai Pudong Development Bank Hangzhou
branch in the amount of $1,571,166 by Zhejiang Yiran Auto Sales Company (“ZYASC”) for the period April 25, 2011 to
April 25, 2012. ZYASC is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations
of ZYASC under the loan contracts if ZYASC fails to perform its obligations as set forth in the loan contracts.

F-44

On December 4, 2011, the Company entered
into a guarantee contract to serve as the guarantor for the bank loans borrowed from Shanghai Bank Hangzhou branch in the amount
of $3,142,332 by Zhejiang Taiping Shengshi Industrial Co., Ltd. (“ZTSICL”) for the period from December 4, 2011 to
December 4, 2012. ZTSICL is not related to the Company. Under this guarantee contract, the Company shall perform all obligations
of ZTSICL under the loan contract if ZTSICL fails to perform its obligations as set forth in the loan contract.

On August 12, 2011, the Company entered
into a guarantee contract to serve as the guarantor for the bank loans borrowed from ICBC Wuyi branch in the amount of $3,613,682
by Zhejiang Taiping Trade Co., Ltd (“ZTTCL”) for the period from August 12, 2011 to August 8, 2013. ZTTCL is not related
to the Company. Under this guarantee contract, the Company shall perform all obligations of ZTTCL under the loan contract if ZTTCL
fails to perform its obligations as set forth in the loan contract.

On January 7, 2011, the Company entered
into two guarantee contracts to serve as the guarantor for the bank loans borrowed from China Communication Bank Jinhua Branch
in the amount of $157,117 and $628,466 respectively by Yongkang Angtai Trade Co., Ltd. (“YATCL”) for the period from
January 7, 2011 to December 31, 2012. YATCL is not related to the Company. Under these guarantee contracts, the Company shall perform
all obligations of YATCL under the loan contracts if YATCL fails to perform its obligations as set forth in the loan contracts.

(2)

Guarantees for Bank notes:

Guarantee provided to

Amount

Zhejiang Mengdeli Electric Co., Ltd.

$

1,256,933

Total

$

1,256,933

On August 24, 2010, the Company entered
into a guarantee contract to serve as guarantor for the bank note borrowed from Huaxia Bank Hangzhou branch in the amount of $1,256,933
by Zhejiang Mengdeli Electric Co., Ltd. (“ZMEC”) for the period from August 24, 2010 to August 24, 2012. ZMEC is a
supplier but not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZMEC under
the loan contract if ZMEC fails to perform its obligations as set forth in the loan contract.

(3)

Pledged collateral for a third party’s bank loans

As of December 31, 2011, the Company provided
the land use rights and plant and equipment pledged as collateral for the following third party:

Zhejiang Mengdeli Electric Co., Ltd.:

Land use rights net book value

$

6,935,129

Plant and equipment net book value

$

4,624,347

It is a common business practice among
companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given. It
is considered a “favor for favor” business practice and is commonly required by the lending banks as in these cases.
These companies provided guarantees for the Company’s bank loans as well. The banks involved in these guarantee transactions
typically allow a maximum loan amount based on a 30% to 70% discount on the net book value of the pledged collateral. Also see
Note 15.

F-45

(b) Pending litigations

There are two lawsuits currently pending
in Ripley County, Missouri against the Company and its subsidiary Zhejiang Kandi Vehicles Co., Ltd.(“Kandi Vehicles”)
as well as other parties, Kandi Investment Group and SunL, and they are related to two persons who died in an accident on March
3, 2006 while operating a go-cart allegedly manufactured by Kandi Vehicles. Kandi Investment Group was a major shareholder
of Kandi Vehicles but it transferred all its equity in Kandi Vehicles to Continental Development Limited in November 2006. Since
then, Kandi Investment Group is unrelated to the Company or its affiliates.

The cases were filed in 2009 and are known
as Elder vs. SunL Group and Griffen vs. SunL Group. In March, 2010, the local trial court entered two default judgments in the
amount of $20,000,000 each against Kandi Vehicles and other parties including Kandi Investment but not the Company. The lawsuit
and default judgments didn’t come to the Company or Kandi Vehicles’ attention until May or June 2010. The Company had
not been served or notified of the lawsuits and learned of their existence and of the default judgment in the course of commercial
discussions with another of the defendants in the cases. Currently, the Company and Kandi Vehicles have filed answers to the complaint
denying any culpability. In addition, the Company requested that the court set aside the default judgments against Kandi Vehicles,
a request granted, by the court, on February 28, 2011. On March 3, 2011, the plaintiffs subsequently appealed the court order vacating
the default judgments; however, the plaintiffs have since voluntarily withdrawn their appeal.

The Company intends to defend these cases
vigorously and expects to prevail in this lawsuit since the Company including its subsidiaries did not manufacture the subject
vehicle in the accident. The Company intends to propound discovery on the plaintiffs and will attempt to have the cases
dismissed by summary judgment, if possible.

(c) Capital Commitment

During the fiscal year of 2011, certain
mold manufacturing contracts were executed. The total amount of executed mold contracts was $16,152,843, of which $11,612,723 had
been paid as of December 31, 2011. Of the remaining balance of $4,540,120, we plan on paying $4,076,626 within the next twelve
months and the rest in March of 2013.

F-46

KANDI TECHNOLOGIES, CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011
AND 2010

NOTE 21 - SUBSEQUENT EVENT

The Company entered into a Share Exchange
Agreement (the “Exchange Agreement”) with KO NGA Investment Limited (“KO NGA”) and each of the shareholders
of KO NGA (“KO NGA Shareholders,” and, together with KO NGA, the “Sellers”). Pursuant to the terms of the
Agreement, the Sellers will exchange an aggregate of 253 shares of KO NGA, representing 100% of the issued and outstanding shares
of KO NGA, to the Company for a total of 2,354,211 shares (the “Exchange Shares”) of the Company’s common stock
(the “Exchange”), representing an aggregate exchange purchase price of approximately $7,952,524, which is primarily
derived from KO NGA’s indirect, wholly-owned operating entity Yongkang Scrou Electric. Co., Ltd. in China and based upon
a valuation report by an independent, third party valuation firm. Upon consummation of the Exchange, KO NGA will become
a wholly-owned subsidiary of the Company. The Exchange Shares will be issued by the Company in reliance on an exemption from the
registration requirements of the Securities Act for the private placement of our securities pursuant to Regulation S of the Securities
Act. The Exchange Shares will be issued to non-U.S. persons (as such term is defined in Regulation S) in an offshore
transaction relying on Regulation S. The Sellers acknowledged that the Exchange Shares to be issued have not been registered under
the Securities Act, and that they understood the economic risk of their investment

The Exchange Agreement contains customary
representations and warranties and pre- and post-closing covenants of each party and customary closing conditions including but
not limited to (i) all of the parties obtaining all necessary consents and approvals; (ii) KO NGA's delivery of certain financial
statements; and (iii) the successful completion of any and all divestitures or other pre-closing transaction required of the KO
NGA and necessary for completion of the Exchange Agreement. A 10 million RMB (approximately $1.6 million) break-up fee will apply
if either party terminates the Exchange Agreement prior to the closing without the causes stipulated under the Exchange Agreement.
Breaches of the representations and warranties will be subject to customary indemnification provisions.

F-47

Item
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item
9A.Controls and Procedures.

(a) Evaluation of Disclosure Controls
and Procedures

As of the end of the period covered by
this report, we conducted an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(f) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of December 31, 2011 our disclosure controls and procedures were effective to ensure
that information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act is (i) recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and
forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding disclosure.

Our management, including our Chief Executive
Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all errors
and all fraud. Disclosure controls and procedures, no matter how well designed, operated and managed, can provide only reasonable
assurance that the objectives of the disclosure controls and procedures are met. Because of the inherent limitations of disclosure
controls and procedures, no evaluation of such disclosure controls and procedures can provide absolute assurance that all control
issues and instances of fraud, if any, have been detected.

(b) Management’s Annual Report
on Internal Control Over Financial Reporting

Our management is responsible for establishing
and maintaining a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted accounting principles. All internal control systems,
no matter how well designed, have inherent limitations.

We conducted an assessment of the effectiveness
of our system of internal control over financial reporting as of December 31, 2011, the last day of our fiscal year. This
assessment was based on criteria established in the framework Internal Control—Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission and included an evaluation of elements such as the design and
operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control
environment. Based on our assessment, management has concluded that our internal control over financial reporting was effective
as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.

37

This annual
report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public
accounting firm.

Changes in Internal Control Over Financial
Reporting

As a result of the Company’s late
acknowledgment and disclosure of litigation in Missouri (see Legal Proceedings above), on July 29, 2011, the Company filed Amendment
No.2 to its Annual Report on Form 10-K for year ended December 31, 2010, originally filed with the SEC on March 31, 2011 and amended
on June 8, 2011 to, amongst other things, make certain corrections as to management’s evaluation of disclosure controls and
procedures. In connection with filing this amendment, the Company reevaluated its disclosure controls and procedures and instituted
an additional control, requiring immediate notification to the Executive Vice President of the Company in the U.S. and the Company’s
general outside counsel of any threatened or initiated litigation. The additional control requires any Company representative that
learns of a legal proceeding of any kind against the Company or any of its subsidiaries to immediately notify the Company’s
U.S. Executive Vice President and the Company’s outside general outside. This additional control has had, and is reasonably
likely to continue to have, a materially positive effect on our internal control over financial reporting.

Other than as discussed in the paragraph
above, there were no changes in our internal control over financial reporting that occurred during the year ended December 31,
2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other
Information.

[Not Applicable]

38

PART III

Item 10.Directors,
Executive Officers and Corporate Governance.

The following table sets
forth certain information regarding our executive officers and directors as of December 31, 2011:

Name

Age

Position

Served From

Hu Xiaoming

55

Chairman of the Board, President and Chief Executive Officer

June 2007

Zhu Xiaoying

41

Chief Financial Officer, Director

June 2007

Zheng Mingyang (1), (2), (3)

58

Director (Independent)

June 2007

Qian Jingsong

51

Director

January 2011

Ni Guangzheng (2), (3)

73

Director (Independent)

November 2010

Jerry Lewin (1)

57

Director (Independent)

November 2010

Henry Yu (1),(2),(3)

58

Director (Independent)

July 2011

(1) Member of Audit Committee

(2) Member of Compensation Committee

(3) Member of Nominating and Corporate Governance
Committee

Business Experience of Directors and Executive
Officers

Biographical Information

Hu Xiaoming has been our Chief Executive
Officer, President and Chairman of the Board of Directors since March 2002. From October 2003 to April 2005, Mr. Hu served as the
Project Manager (Chief Scientist) in the WX Pure Electric Vehicle Development Important Project of Electro-vehicle in the State
863 Plan. Prior to that, from October 1984 to March 2003, Mr. Hu served as: (i) Factory Director of the Yongkang Instrument Factory,
(ii) Factory Director of the Yongkang Mini Car Factory, (iii) Chairman and General Manager of the Yongkang Vehicle Company, (iv)
General Manager of the Wan Xiang Electric Vehicle Developing Center and (v) the General Manager of the Wan Xiang Battery Company.
Mr. Hu personally owns 4 invention patents, 7 utility model patents and 11 appearance design patents. Mr. Hu’s experience
as our Chief Executive Officer and President, as well as Chairman of the Board, and extensive scientific and operational knowledge
and expertise qualifies him to serve as Chairman of the Board of Directors.

Zhu Xiaoying was appointed as our
Chief Financial Officer and a director of the Company in June 2007. In addition, since September 2003, Ms. Zhu has served as Chief
Financial Officer of Zhejiang Kandi. From January 2000 to September 2003, Ms. Zhu served as the Accounting Manager for Zhejiang
Yonkang Automobile Manufacture Co. Ms. Zhu graduated from Hangzhou Electronic Engineering University. Ms. Zhu acquired CIA certificate
in 2010 and EMBA certificate from Hong Kong Polytechnic University in 2011, Ms. Zhu’s experience as our Chief Financial Officer
and knowledge of current corporate finance and accounting techniques and market activities qualifies her to serve on our Board
of Directors.

39

Zheng Mingyang was appointed as
a director of the Company in June 2007. Prior to joining the Company, Mr. Zheng served as the Vice President of Yongkang Automobile
Manufacture Co. from May 1992 to September 2003. Mr. Zheng’s operational expertise, as well as his experience serving as
an executive officer of other leading automobile manufacturers, qualifies him to serve on our Board of Directors.

Henry Yu was appointed as a director
of the Company on July 1, 2011. Mr. Yu serves as Senior Vice President of the East West Bank. Prior to his current position, Mr.
Yu served as the President of Shanghai Bosun Capital Advisors in Shanghai, China from January to June 2011. From January 2008 to
December 2010, Mr. Yu served as a senior manager of Standard Chartered Bank in China. From November 1999 to December 2007, Mr.
Yu served as Managing Director of Global Trade Solutions of SunTrust Bank in Atlanta, Georgia. Currently, Mr. Yu serves as Chair
of the Advisory Board of the National Association of Chinese-Americans and serves as an Advisor to China’s Federation of
Overseas Chinese. Since 2009, Mr. Yu has served as an International Advisor to Sichuan University Suzhou Institute, and, since
2004, Mr. Yu has served on the Foundation Board Trustee of Georgia Perimeter College. From 2003 to 2007, Mr. Yu held Series 7 and
62 Certifications from the Financial Industry Regulatory Authority. Mr. Yu received his Bachelor of Arts degree in Economics from
the University of Michigan in 1978 and his MBA in Finance from the University of Detroit in 1980. Mr. Yu’s leadership skills
and extensive financial experience qualifies him to serve on our Board of Directors.

Qian Jingsong was appointed
as a director of the Company on January 31, 2011. In addition, since October 2009, Mr. Qian has served as Deputy General
Manager of Zhejiang Kandi Vehicles Co. Ltd. Prior to joining the Company, from October 2006 to October 2009, Mr. Qian served
in multiple capacities for Chery Karry Automobile, including Head of the Engineering Construction Group (2006-2007), Vice Manager
of the Q21 Project (2007), Assistant General Manager of the Production Management and Integrated Management Departments (2007-2010).
During his tenure at Chery Karry Automobile, Mr. Qian was in charge of quality assurance and participated in strategy, planning
and product development work for Chery mini-cars. From August 1999 to September 2006, Mr. Qian served as Deputy General
Manager and Executive General Manager of Anhui Huayang Auto Manufacturing Co., LTD, where he oversaw technical improvement, product
development, administrative personnel, and external affairs. Mr. Qian received a degree in Professional Ordnance from the
Aerospace Staff University in Nanjing, China in 1983. Mr. Qian’s experience in the automobile and mini-car industries and
his expertise in quality assurance and planning and product development qualifies him to serve on our Board of Directors.

Ni Guangzheng was appointed as a
director of the Company in November 2010. Mr. Ni is a permanent member of Chinese Society of Electrical Engineering, and, since
1998, has served as the Deputy Director of Technical Committee & Director of EV Research Institute of National ERC of Power
Electronic Technology. Mr. Ni has extensive experience in the areas of electro-technical and electrical engineering. Mr. Ni has
served as: Head of Department of Electrical Engineering at Zhejiang University (1994 to 1998), Deputy Director of Electro-technical
Theory Committee of China Electro-Technical Society (1989 to 1993), Director of the National ERC of Power Electronic Technology
(1996 to 1998) and Deputy Director of the Large Electrical Machine Committee of Chinese Society of Electrical Engineering
(1997 to 1999). Mr. Ni received his bachelors degree in electrical machine and a masters degree in Elcetro-technology theory from
Xian Jiaotong University. Mr. Ni’s leadership skills and extensive engineering experience, as well as his electrical and
technical expertise, qualifies him to serve on our Board of Directors.

40

Jerry Lewin was appointed as a director
of the Company in November 2010. Jerry Lewin currently serves as Senior Vice President of Field Operations for Hyatt Hotels Corporation
and is responsible for managing 35 hotels throughout the North American continent. Mr. Lewin has been with Hyatt since 1987. In
his capacity as Senior Vice President, Mr. Lewin supervises a number of areas, including finance, sales and marketing,
public relations, customer service, engineering, and human resources. Mr. Lewin serves as a member of the Hyatt Hotels Corporation’s
Managing Committee and sits on the board of directors of the New York City Hotel Association. Since July 2009, Mr. Lewin
has served as a director and a member of the audit committee of EFT Biotech Holdings, Inc. Mr. Lewin currently serves as the
President of the New York Law Enforcement Foundation and as the Chairman of the board of directors of the NY State Troopers PBA
Signal 30 Fund. Mr. Lewin has served in various management capacities for several hotel companies in San Francisco, Oakland,
Los Angeles, San Diego and Las Vegas. Mr. Lewin received his Bachelor of Science degree from Cornell University and
completed the Executive Development Program at J.L. Kellogg Graduate School of Management at Northwestern University. Mr. Lewin’s
leadership skills and extensive management experience qualifies him to serve on our Board of Directors.

Family Relationships

No family relationships exist among any of
our director nominees or executive officers.

Audit Committee Financial Expert

Our Audit Committee currently consists
of Henry Yu (Chairman), Jerry Lewin and Zheng Mingyang, each of whom is independent under NASDAQ listing standards. Our Board of
Directors determined that each of Mr. Yu and Mr. Lewin qualifies as an “audit committee financial expert,” as defined
by Item 407 of Regulation S-K and NASDAQ Rule 5605(a)(2). In reaching this determination, the Board of Directors made a qualitative
assessment of Mr. Yu’s and Mr. Lewin’s level of knowledge and experience based on a number of factors, including formal
education and business experience.

Code of Ethics

We have adopted a “code of ethics”
as defined by regulations promulgated under the Securities Act of 1933, as amended, and the Exchange Act that applies to all of
our directors and employees worldwide, including our principal executive officer, principal financial officer and principal accounting
officer. A current copy of our Code of Ethics is included as an exhibit to a Form 8-K filed, November 5, 2007. A copy
of our Code of Ethics will be provided to you without charge upon written request to Hu Xiaoming, Chief Executive Officer, Kandi
Technologies, Corp., Jinhua City Industrial Zone, Jinhua, Zhejiang Province, People’s Republic of China, 321016.

41

Section 16(A) Beneficial Ownership Reporting
Compliance

Section 16(a) of the Securities
Exchange Act of 1934 requires that the Company’s directors and executive officers and persons who beneficially own more than
ten percent (10%) of a registered class of its equity securities, file with the SEC reports of ownership and changes in ownership
of its common stock and other equity securities. Executive officers, directors, and greater than ten percent (10%) beneficial owners
are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports that they file. Based solely upon
a review of the copies of such reports furnished to us or written representations that no other reports were required, the Company
believes that, during fiscal year 2011, all filing requirements applicable to its executive officers, directors, and greater than
ten percent (10%) beneficial owners were met.

Item 11.Executive Compensation

Summary Compensation Table

The following table summarizes the compensation
earned during the years ended December 31, 2011 and 2010, by those individuals who served as our Chief Executive Officer, or Chief
Financial Officer during any part of fiscal year 2011 or any other executive officer with total compensation in excess of $100,000
during fiscal year 2011. The individuals listed in the table below are referred to as the “named executive officers.”

Non-Equity

Nonqualified

Incentive

Deferred

All

Stock

Option

Plan

Compensation

Other

Salary

Bonus

Awards

Awards

Compensation

Earnings

Compensation

Total

Name and Principal Position

Year

($)

($)

($)

($)(3)

($)

($)

($)

($)

Hu Xiaoming (1)

2011

$

30,895

—

—

$

79,346

—

—

—

$

110,241

CEO, President and Chairman of the Board

2010

$

29,504

—

—

$

193,954

—

—

—

$

223,458

Zhu Xiaoying (2)

2011

$

23,171

—

—

$

51,575

—

—

—

$

74,746

CFO

2010

$

22,128

—

—

$

126,070

—

—

—

$

148,198

(1)

Mr. Hu was appointed as CEO and President of the Company on June 29, 2007.

(2)

Ms. Zhu was appointed as CFO of the Company on June 29, 2007.

(3)

The amounts in this column reflect the aggregate grant date fair value under FASB ASC Topic 718 of
awards made during the respective year

We use base salary to fairly and competitively
compensate our executives, including the named executive officers, for the jobs we ask them to perform. We view base salary
as the most stable component of our executive compensation program, as this amount is not at risk. We believe that the base
salaries of our executives should be targeted at or above the median of base salaries for executives in similar positions with
similar responsibilities at comparable companies, consistent with our compensation philosophy. At the end of the year, each executive’s
performance is evaluated by our Compensation Committee which takes into account the individual’s performance, responsibilities
of the position, adherence to our core values, experience, and external market conditions and practices.

Long-Term Compensation

We believe it is a customary and competitive
practice to include an equity-based element of compensation to the overall compensation package for our named executive officers. We
believe that a significant portion of the compensation paid to our named executive officers should be performance-based and therefore
at risk. Awards made are granted under the Kandi Technologies, Corp. Omnibus Long-Term Incentive Plan (the “LTIP”).
At our 2008 annual meeting of shareholders, our stockholders approved the adoption of the LTIP, As of December 31, 2011, 2,600,000
options have been granted under the LTIP to the Company’s employees and directors, among which 906,695 have been exercised,
and 6,668 have been forfeited.

Outstanding Equity Awards at 2011 Fiscal
Year-End

The following table sets forth information
regarding all unexercised, outstanding equity awards held, as of December 31, 2011, by those individuals who served as our named
executive officers during any part of fiscal year 2011.

Option Awards

Stock Awards

Equity

Incentive

Plan

Equity

Market

Awards:

Equity Incentive

Incentive Plan

Value of

Number of

Plan Awards:

Number of

Number of

Awards:

Shares or

Unearned

Market or Payout

Securities

Securities

Number of

Number

Units of

Shares,

Value of

Underlying

Underlying

Securities

of Shares or

Stock

Units or

Unearned

Unexercised

Unexercised

Underlying

Option

Units of

That

Other

Shares, Units or

Options

Options

Unexercised

Exercise

Option

Stock That

Have Not

Rights That

Other Rights That

(#)

(#)

Unearned

Price

Expiration

Have Not

Vested

Have Not

Have Not Vested

Name

Exercisable

Unexercisable

Options (#)

($)(4)

Date

Vested (#)

($ )

Vested (#)

($)

Hu
Xiaoming(1)(3)

266,663

—

266,667

$

0.80

2/11/2019

—

—

—

Zhu
Xiaoying(2)(3)

173,337

—

173,333

$

0.80

2/11/2019

—

—

—

43

(1)

Mr. Hu was appointed as CEO and President of the Company on June 29, 2007.

(2)

Ms. Zhu was appointed as CFO of the Company on June 29, 2007.

(3)

On February 11, 2009, the Compensation Committee and the Board approved the grant of stock options
for 2,600,000 shares of common stock to certain executive officers and directors of the Company. The stock options vest ratably
over three years (on the anniversary of the grant date) and expire in ten years from the grant date. The grant date fair value
of each stock option awarded was $0.79. Mr. Hu was granted 800,000 stock options, of which 266,670 have been exercised.
Ms. Zhu was granted 520,000 stock options, of which 173,330 have been exercised.

(4)

Per the individual agreements negotiated between the Company and Mr. Hu and Ms. Zhu, respectively,
the stock options have an exercisable price of $0.80; however, the grant date fair value of each stock option awarded (calculated
in accordance with FASB Topic 718) is $0.79.

Employment Agreements

We have employment agreements with our
named executive officers; however, the salary for our named executive officers may be changed at the discretion of our Board of
Directors. Both employment agreements are for ten year terms, ending on June 9, 2014.

Potential Payments Upon Termination
or Change of Control

Under Chinese law, we may only terminate
employment agreements without cause and without penalty by providing notice of non-renewal one month prior to the date on which
the employment agreement is scheduled to expire. If we fail to provide this notice or if we wish to terminate an employment agreement
in the absence of cause, as defined in the agreement, then we are obligated to pay the employee one month’s salary for each
year we have employed the employee. We are, however, permitted to terminate an employee for cause without penalty pursuant to the
employment agreement. If the named executive officer is not terminated for cause, the Company will pay the remaining portion of
the executive officer’s salary. Upon termination, any unvested or unexercised stock options are forfeited.

44

Director Compensation (excluding Named
Executive Officers)

The following table
sets forth certain information regarding the compensation earned by or awarded during the 2011 fiscal year to each of our non-executive
directors:

Non-Equity

Nonqualified

Fees Earned

Stock

Option

Incentive Plan

Deferred

All Other

or Paid in

Awards

Awards

Compensation

Compensation

Compensation

Total

Name

Cash ($)(2)

($)

($)(1)(2)

($)

Earnings

($)

($)

Zheng Mingyang

$

0

–

$

1,984

–

–

–

$

1,984

Ni Guangzheng

$

3,707

–

–

–

–

–

$

3,707

Qian Jingsong

$

46,343

–

–

–

–

–

$

46,343

Henry Yu

$

12,000

(3)

18,500

–

–

–

–

$

30,500

Jerry Lewin

$

24,000

15,417

–

–

–

–

$

39,417

(1)

The amounts in these columns represents the aggregate grant date fair value of stock option awards
granted to our non-employee directors during fiscal year ended December 31, 2011, in accordance with ASC Topic 718. On February
11, 2009, the Compensation Committee and the Board of Directors approved the grant of stock options for 2,600,000 shares of common
stock to certain executive officers and directors of the Company. The stock options vest ratably over three years and expire in
ten years from the grant date. The grant date fair value of each stock option awarded was $0.79.

(2)

In setting director compensation, we consider the significant amount of time that directors expend
in fulfilling their duties to the Company, as well as the skill level required to serve as a director and manage the affairs of
the Company. Certain directors receive a monthly Board fee as follows: (i) Ni Guangzheng receives a monthly fee of RMB 2,000
(approximately $309); (ii) Jerry Lewin receives a monthly fee of $2,000; and (iii) Henry Yu receives a monthly fee of $2,000. The
Company did not pay a monthly fee to Zheng Mingyang.

(3)

Appointed to the Board of Directors in July 2011; therefore, reported compensation reflects
six months of fees for fiscal year ended December 31, 2011.

45

In connection with his appointment to the
Board of Directors in July 2011, the Board of Directors authorized the Company to provide Mr. Yu with 5,000 shares of Company’s
restricted common stock every six months, par value $0.001. Similarly, in July 2011, the Board of Directors authorized the Company
to provide Mr. Lewin with 5,000 shares of Company’s restricted common stock every six months from August 2011, par value
$0.001. As of December 31, 2011, no restricted common stock has been issued to Mr. Lewin or Mr. Yu.

The aggregate number of
stock options and restricted outstanding, as of December 31, 2011, for each of the non-executive officer directors were as
follows:

The following table sets forth information
known to us, as of the date of this report, relating to the beneficial ownership of shares of common stock by each person who is
known by us to be the beneficial owner of more than five percent of the outstanding shares of common stock; each director; each
executive officer; and all executive officers and directors as a group. We believe that all persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as being owned by them.

Amount and Nature

of Beneficial

Percent of

Title of Class

Name of Beneficial Owner

Ownership

Class

Common Stock

Excelvantage Group Limited(3)

12,000,000(1)

43.72

%

Common Stock

Hu Xiaoming

12,285,170(2)

44.76

%

Common Stock

Zhu Xiaoying

173,330

0.63

%

All officers and directors

12,458,500

45.39

%

(1)

On March 29, 2010, Hu Xiaoming, the Company’s Chief Executive Officer, President and Chairman
of the Board, became the sole stockholder of Excelvantage Group Limited. Through his position as the sole stockholder in Excelvantage
Group Limited, Mr. Hu has the power to dispose of or direct the disposition of the shares of common stock he owns in Excelvantage
Limited Group. As a result, Mr. Hu may, under the rules of the Securities and Exchange Commission, be deemed to be the beneficial
owner of the shares of common stock.

(2)

Includes (i) 285,170 shares owned directly by Mr. Hu and (ii) 12,000,000 shares owned by Excelvantage
Group Limited. As reflected in footnote 1, Mr. Hu may be deemed to be the beneficial owner of these shares.

The Board of Directors must approve all
related party transactions. All material related party transactions will be made or entered into on terms that are no less favorable
to us than can be obtained from unaffiliated third parties.

In connection with the share exchange transaction,
which took place on June 29, 2007, between Stone Mountain Resources, Inc., a Delaware corporation (“Stone Mountain”),
Continental Development Ltd, a Hong Kong corporation, and Excelvantage Group Limited, a British Virgin Islands company, certain
of the expenses incurred in the United States in connection with the transaction were paid on behalf of Stone Mountain by Ever
Lotts Investment Limited (“ELIL”), an entity set up for this purpose by certain shareholders of Stone Mountain. As
of December 31, 2011 and 2010, ELIL had paid $841,251 and $841,251, respectively, for expenses in connection with the share exchange
transaction.

The following table lists the amount due to
related party as of December 31, 2011 and 2010. There is no transaction with related party occurred within the fiscal year of 2011.

2011

2010

ELIL

$

841,251

$

841,251

Total due to related party

$

841,251

$

841,251

Director Independence

Mr. Henry Yu, Zheng Mingyang, Ni Guangzheng
and Jerry Lewin are all non-employee directors, all of whom our Board of Directors has determined are independent pursuant to NASDAQ
rules. All of the members of our Audit Committee, Nominating/Corporate Governance Committee and Compensation Committee are independent
pursuant to NASDAQ rules.

Item 14. Principal Accounting Fees and
Services.

The following table represents the aggregate
fees from our principal accountant, Albert Wong & Co., and other accounting related service providers for the years ended December
31, 2011 and 2010 respectively.

2011

2010

Audit Fees

$

111,000

$

104,850

Audit Related Fees

$

9,000

$

18,000

All Other Fees

$

77,600

$

11,950

TOTAL FEES

$

197,600

$

134,800

47

Fees for audit services include fees associated
with the annual audit and reviews of our quarterly reports, Audit related fees mainly include the fees associated with the financial
instruments evaluation, while all other fees include fees occurred for services performed in conjunction with internal control
and our filing of the tax return

48

PART IV

Item 15.Exhibits, Financial
Statement Schedules.

Exhibit

Number

Description

2.1

Share Exchange Agreement, dated June 29, 2007, among Stone Mountain Resources, Inc., Continental Development Limited and Excelvantage Group Limited. [Incorporated by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 6, 2007]

3.1

Certificate of Incorporation. [Incorporated by reference from Exhibit 3.1 to Form SB-2 filed by the Company on April 1, 2005]

3.2

By-laws. [Incorporated by reference from Exhibit 3.2 to Form SB-2 filed by the Company on April 1, 2005]

4.1

Form of Warrant [Incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 21, 2010]

5.1

Legal Opinion of K&L Gates LLP. [Incorporated by reference from Exhibit 5.1 to the Company’s Current Report on Form 8-K filed on December 22, 2010]

10.1

Agreement on Business Operations between Zhejiang Kandi Vehicles Co., Ltd. and Zhejiang Yongkang Top Import & Export Co., Ltd. [Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 6, 2007]

10.2

Employment Contract, dated June 10, 2004, by and between Zhejiang Kandi Vehicles Co., Ltd. and Mr. Hu Xiaoming. [Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 6, 2007]

10.3

Employment Contract, dated July 10, 2004, by and between Zhejiang Kandi Vehicles Co., Ltd. and Ms. Zhu Xiaoying. [Incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on July 6, 2007]

10.4

Securities Purchase Agreement between the Company and certain institutional accredited investors, dated January 21, 2010 [Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 21,2010]

10.5

Form of Senior Secured Convertible Note [Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 21 2010]

10.6

Form of Warrant [Incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on January 21 2010]

49

10.7

Form of Registration Rights Agreement [Incorporated by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on January 21 2010]

10.8

Form of Pledge Agreement [Incorporated by reference from Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on January 21 2010]

10.9

Voting Agreement between Company and Excelvantage Group Limited dated January 21, 2010 [Incorporated by reference from Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on January 21 2010]

10.10

Placement Agreement between the Company and FT Global Capital, Inc. dated January 21, 2010 [Incorporated by reference from Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on January 21 2010]

10.11

Joint Venture Agreement, dated September 28, 2010, by and among Jinhua Bada Group, Zhejiang Kandi Vehicles Co., Ltd., and Tianneng Power International Co., Ltd. [Incorporated by reference from Exhibit 10.1 to the Company’s Form 10-Q filed on November 15, 2010]

10.12

Securities Purchase Agreement between the Company and certain institutional investors, dated December 21, 2010. [Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 21, 2010]

10.13

The Agreement of Establishment Kandi New Energy Vehicles Co., Ltd. dated May 18, 2010, by and between Zhejiang Kandi Vehicles Co., Ltd. and Mr. Hu Xiaoming, and its supplement, dated January 31, 2011. [Incorporated by reference from Exhibit 10.13 to the Company’s Annual Report on Form 10-K filed on March 31, 2011]

10.14

The Share Escrow and Trust Agreement, dated May 18, 2010, by and between Zhejiang Kandi Vehicles Co., Ltd. and Mr. Hu Xiaoming. [Incorporated by reference from Exhibit 10.14 to the Company’s Annual Report on Form 10-K filed on March 31, 2011]

10.15

The Contractor Agreement, dated May 18,
2010, by and between Zhejiang Kandi Vehicles Co., Ltd. and Mr. Hu Xiaoming. [Incorporated by reference from Exhibit 10.15 to the
Company’s Annual Report on Form 10-K filed on March 31, 2011]

10.16

Loan Agreement dated January 31, 2011, by and between Zhejiang Kandi Vehicles Co., Ltd. and Mr. Xiaoming Hu [Incorporated by reference from Exhibit 10.1 to the Company’s Form 10-Q filed on May 16, 2011]

16.1

Letter from Gately & Associates, LLC. [Incorporated by reference from Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on August 14, 2007]

21.1

List of Subsidiaries of Registrant

50

23.1

Consent of Albert Wong & Co. †

31.1

Certification of CEO pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. †

31.2

Certification of CFO pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. †

32.1

Certification s of CEO and CFO Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

† Exhibits filed herewith.

51

SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

KANDI TECHNOLOGIES, CORP.

March 30, 2012

By:

/s/ Hu Xiaoming

Hu Xiaoming

President and Chief Executive Officer

Pursuant to the requirements of the Exchange
Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.